MIP56: Alternative MKR Compensation Guidelines

Preamble

MIP#:56
Title: Alternative MKR Compensation Guidelines
Author(s): @Aes
Contributors: @LongForWisdom
Tags: General
Type: General
Status: RFC
Date Proposed: 2021-07-07
Date Ratified: TBA
Dependencies: n/a
Replaces: n/a

References

Pre-MIP discussion

Sentence Summary

MIP56 describes how MKR can be used to attract, retain and align interests of all stakeholders in the MakerDAO community.

Paragraph Summary

MIP56 details the five Core Components of the Alternative MKR Compensation Guidelines: Domain Approach, Multi-phase Guidelines, Vesting, Limit to Inequity, and Separation of Concerns. MKR amounts listed under the Initial Compensation Guidelines are provided primarily for illustrative purposes and may vary greatly based on a prospective Core Unit team’s experience, expected value, and current market conditions. Estimated financial impact is also included under base, bear, and bull market scenarios with adjustable MKR compensation and other key inputs

Component Summary

MIP56c1: MKR Compensation Proposal Requirements
Outlines the requirements a Special Purpose Fund must meet to be valid for inclusion in the Governance Cycle.

MIP56c2: Domains and Subdomains
Lists domains and subdomains and relative MKR amounts

Motivation

There are three main reasons to implement MKR compensation; providing governance rights to dedicated DAO CU contributors (ownership), allocating MKR equitably across the DAO (decentralization), and retaining talented contributors (commitment).

Standardizing MKR compensation guidelines will also allow us to scale more efficiently and reduce administrative burden from having to track and account for multiple unique MKR compensation plans.

Ownership
To maximize the potential of MakerDAO, we believe everyone working in a CU should have governance rights. We believe that this will be a net benefit to all MKR Holders over the long-term - even if minted MKR exceeds burnt MKR over the next few years.

Decentralization
The quality of decentralization was what drew many to this project, and is a continued value proposition for the Maker Protocol that should be maintained and nurtured into the future. This value can be increased by spreading MKR more widely among the current and future decentralized workforce.

Commitment
Our belief is that contributors who believe strongly enough in MakerDAO to be dedicating their working hours to the protocol are more likely to retain the majority of any MKR compensation they earn to use to direct the future of MakerDAO, rather than selling it immediately upon vesting. If this bears out, it means that the majority of MKR compensation is effectively removed from the circulating supply.

This belief has held up with many individuals from the projects history. Many of those whom worked in the Maker Foundation have gone on to continue to work for the DAO, in some part due to the MKR they have retained from their time at the Foundation. Smart, driven and committed individuals like these are a critical asset for the DAO and MKR Compensation is a great way to attract and retain these individuals.

Specification / Proposal Details

MIP56c1: MKR Compensation Proposal Recommendations
Details five core components for Core Units to follow when proposing a MKR compensation budget.

  1. Proposed MKR Comp should be justified in relation to one of four primary domains (can be listed as multi-disciplinary where necessary); Engineering, Risk, Growth, or Coordination domains
  2. Core Unit MKR Comp should be pursued separately from CU operating budgets - recommendation is to post simultaneously or shortly after operating budgets are requested
  3. Vesting will be one year cliff with quarterly vesting thereafter, with a maximum of three years
  4. Max MKR an individual will receive is recommended at 10x the lowest individual’s MKR within a CU. This recommendation does not specify that every individual within a CU must receive MKR compensation.
  5. Framework will be modified based on community feedback and updated on a quarterly basis once accepted

If a CU decides to not follow these guidelines, Governance should request justification for deviations.

MIP56c2 Domains and Subdomains
Lists current domains and subdomains for a prospective CU to be listed under.

The below amounts (which assume a base of 80 MKR) are relative, presented for illustrative purposes, and are not intended to be fixed amounts. Ultimately it is up to Governance to decide what amounts are appropriate based on the team’s experience, mandate, market value, and whatever other factors they consider important.

Primary Domains
Engineering - Technical development and support of the Maker Protocol.
Risk - Management of risk in multiple areas.
Growth - Encouraging growth of the Maker Protocol and the MakerDAO.
Coordination - Maintaining effectiveness of MakerDAO, its core units, and its governance.

Domain Suggested Multiplier Average MKR / person / year PE Submission Price 1y High Value 1y Low Value
Engineering - Protocol 1.5 120 270,000 720,000 50,640
Engineering - Oracles 1.2 96 216,000 576,000 40,500
Engineering - Frontend 0.75 60 135,000 360,000 25,300
Engineering - Integrations 0.9 72 162,000 432,000 30,400
Risk - Protocol 1 80 180,000 480,000 33,800
Risk - Real World Finance 1 80 180,000 480,000 33,800
Risk - Legal 1 80 180,000 480,000 33,800
Growth - Business Development 1 80 180,000 480,000 33,800
Growth - Marketing 0.75 60 135,000 360,000 25,300
Growth - Internal 0.9 72 162,000 432,000 30,400
Coordination - Governance 1 80 180,000 480,000 33,800
Coordination - Communications 0.5 40 90,000 240,000 16,900
2 Likes

Generally speaking, I think “Coordination - Communications” is given too low a multiplier. It’s a pretty important function and shouldn’t be considered the least important type of Core Unit.

3 Likes

Sir, thought about it and GovAlpha should have a multiplier of at least1.2 and Average MKR/person/Year should be somewhere around 90 to 110. Trust me. They deserve it.

Also, when skill milling this MIP (and prior) did you ever think about maybe creating something similar to an RSU–in this case “Restricted Token Units” based on employee performance goals? Or, is that something that can be implemented later on? Just wondering.

Any Core Unit is free to propose whatever they feel is appropriate given the scope of the Core Unit, the team’s experience, and market value. As mentioned the outlined values are relative, not fixed, and may fluctuate greatly based on the factors I mentioned, as well as team composition. Some teams are flatter than others (PE) and others may be more hierarchical in nature so the median MKR value within a CU could vary greatly.

PE’s budget was ratified at over 2x the value listed in the table after the MKR price more than doubled with very little votes in opposition, so I could certainly see MKR compensation for certain CUs higher than the values listed in the table. I’ll refrain from commenting on any specific CUs.

Regarding performance goals, I’ve advocated for DAO-wide performance metrics and still think it’s a great idea long term to further incentivize outstanding achievements (likely in the form of ‘token’ options on top of the RTUs you mention). Others have raised the argument of it being too early to implement and I understand that perspective - therefore I’d like to revisit periodically (every six months or so) to reconsider implementing.

Regarding employee based goals, I think they are up to each CU facilitator based on each CU’s mandate and each contributor’s job responsibilities, but it is something I personally would expect all to have.

1 Like

What happens if multiple framework MIPs are approved?

6 Likes

After a brief google search… a technical writer at Boeing or Facebook makes 110k a year.

I feel the proposal is quiet generous coinsidering the proposed MKR bonus for your core unit at current market is priced at 90k. Factor in you are still receiving a generous salary perhaps the issue is other core units multipliers are too high.

2 Likes

I wasn’t taking those numbers too seriously. My comment was more about the relative weighting of the multipliers and what they reflected.

Regardless, I think I missed the point and would like to share my general thoughts on the proposal. I know it’s meant to be modified with time and feedback and so I believe this is a solid foundation to start from. The categorization of teams is simpler and more intuitive compared to MIP53. Overall I appreciate the simplicity, and letting teams take it beyond the broad strokes these guidelines establish. This MIP gives all Core Units a place to discuss and decide proper weighting between categories of teams while separating out the individual team proposal as its own thing that can deviate from the baseline set here (based on the team experience, performance, etc.)

1 Like

Depends on the contents of the competing proposal. Would it supercede it? Does it duplicate any processes? Could Core Units choose between two sets of ratified guidelines? Maybe.

Thankfully not an issue for us right now (since the other proposal was withdrawn) :sweat_smile:

What would happen to additional core units? There are a few in the queue.

What I like about this MIP

The motivation behind this MIP

We agree that an MKR Compensation Plan is central to the survival of the DAO by attracting, retaining, and aligning talent to the MKR voters.

The work of these two Contributors

@LongForWisdom and @AES’ work cannot be overstated. These two contributors have done a vast amount of work for the DAO in numerous ways, and we cannot thank them enough. I also think they both know that I enjoy working with them, and I intend to keep doing so in the future, hopefully for a long time.

Financial Implications and Scenario Analysis :fire::fire::fire:

This is great. We need more of this. Some of us believe that we need a dedicated Core Unit to build more of these. And @AES has probably all the right skills to do this. (I’m not saying he should do it, but he probably should do it :wink:). We need much more visibility on the financials of the DAO—definitely my favourite part of the fundamental research to build this MIP.

It keeps the conversation going

This conversation started some time ago, and a lot of people have contributed with their brains. I believe that it is a crucial topic central to the future development of the DAO.

Where I think this MIP falls short

It feels rushed

It went from discussion to MIP in seven days. Is there a specific reason for this?

It is unclear on what MKR holders are voting

If the numbers are illustrative, are we voting on the ratios? Or are we voting on the definition of the primary domains? Or we’re voting in the Dai denominated compensation?

We all agree that we need some guidelines, which might be a step in the right direction. However…

Guidelines to help Facilitators

The idea of having guidelines (or at least @SES-Core-Unit’s view) is to remove hurdles for the teams to focus on what they should be doing: providing value for the DAO.

Contributors (including a potential Facilitator with 2+ years of Maker knowledge) have already raised questions about how to proceed with these guidelines.

What happens if…

Seniority

…my team is composed of an army of interns and entry-level contributors?

…my team is composed of senior superstars?

Multi-domain teams

…my team is composed of Contributors spanning multiple domains?

Contributors Specific Situation

…a person in my team will contribute part-time?

…a person in my team wants to contribute more and switch to full-time?

MKR Price

… the price of MKR tanks? The package will become less competitive. At which percentage or change is this reviewed? Or is it every three months? Or six months? Who is going to review it?

…the price of MKR skyrockets? Are we going to be handing super-competitive out-of-market packages? Will the MKR holders agree to that?

:point_up_2:t3:There are topics that might lead to huge disparities within the same Core Unit, let alone across the DAO. Should not a set of guidelines address these questions to serve the current and future teams?

Ignores the conversation

As much as I think this discussion is necessary, I am disappointed that it has completely ignored all the points raised in the SES proposal.

We intended to design guidelines to help teams while trying to solve potential edge cases. Here is the post, in case that someone missed it.

No feedback from current Facilitators or Contributors

This point might be wrong, as I have not spoken to every Facilitator or Contributor (with or without MKR Compensation in place). I have talked to a few, and no one seems to have been consulted to draft this MIP (except for @LongForWisdom, of course).

Snapshot of your vision for the DAO

While a lot of people will agree with your ratios, some might not. Worse, not every voter might infer that fixing the MKR Compensation in a certain way shapes the vision of how the DAO should be shaped.

@wouter has already articulated this idea, so I won’t make this post unnecessarily longer by repeating it.

Conclusion

While I agree with the motivation behind the MIP and some of the guiding principles, I feel that it falls short of its noble intention.

6 Likes

We believe the primary domains would capture most of the upcoming CUs - looking at what’s in formal submission, Content Production and Strategic Marcoms would fall under Growth (Marketing), CES would fall under Engineering, and GovCom would fall under Coordination. Our intent was not to create an exhaustive list of every CU and allocate specific MKR amounts to them, but to provide categories that would cover most prospective CUs.

MKR Compensation has been actively discussed for several months now between Planet’s proposal, the SES proposal, and within CU budget threads. Multiple Core Units have not proposed any MKR compensation yet and others are mixing and matching existing proposals. Lacking standardization is an issue both from attracting talent and tracking our financials. As Winston Churchill said, “Perfection is the enemy of progress” so we decided to move this proposal forward.

MKR holders are voting on the six Core Components listed under specification. To summarize:

  1. Proposed MKR Comp must be listed under one of four primary domains
  2. Core Unit MKR Comp must be pursued separately from CU operating budgets
  3. Vesting will be one year cliff with quarterly vesting thereafter, with a maximum of four years
  4. Flatter and more equitable distribution will be used compared to traditional corporate structures
  5. No individual will receive more than 10x the lowest individual’s MKR within a CU
  6. Framework will be modified based on community feedback and updated regularly

Regarding the last point - there are multiple ways we are already thinking through to improve the guidelines.

  1. One key issue raised in the discussion thread, is how we can effectively have a CU ‘negotiate’ their compensation with the DAO. Currently, the decision comes down to an on-chain vote with a binary outcome which I don’t think is great for either party. I’d love some suggestions for how this can be improved. I’ve considered adding a polling requirement for each MKR comp proposal with different voting options (requested amount is too high, too low, appropriate) but am undecided on how to implement.
  2. Another guideline I think we should consider implementing is requiring each MKR proposal to include a peer compensation analysis. This would give the DAO an understanding of how the CU is calculating their compensation and what peers are most appropriate. This would be easy to implement for CUs that align with existing functions (engineering, sales, risk) but a challenge for other CUs (governance, SES).
  3. Lastly, we considered requiring each CU to disclose the number of facilitators/team leads, senior contributors, and junior contributors with corresponding MKR amounts for each.

The guidelines are intended to be flexible for the reasons you mention - team seniority, domain applicability, etc. to be able to accommodate both superstar and junior teams. We specifically addressed this in the discussion thread:

Compensation guidelines should be flexible enough to accomodate both superstar teams and those with less experience but that have shown potential.

Ultimately, it is up to governance to evaluate each individual proposal on its merits and determine the appropriate MKR compensation.

The MKR per person is based on FTEs, I will clarify in the OP. Someone switching from part to full-time would receive a pro-rata allocation based on commitment then the full allocation after converting.

This is the nature of equity-like compensation packages - it is a trade-off between guaranteed, fixed compensation and variable, high-risk high-reward compensation.

As we’ve discussed I am in agreement with much of what SES has proposed. In fact, most CUs could use the MKR compensation formula SES provided to come up with base values for their team. We’ve opted to move something forward that focuses on simplicity and flexibility both for the facilitators and DAO rather than detailing all potential problems and solutions.

I’m not sure what you mean, we’ve stated multiple times that the MKR compensation listed is NOT fixed, and dependent on each individual team’s experience, mandate, market value, etc. You could have a superstar team that receives more than 2x a listed amount and one that receives half within the same subdomain and that could be perfectly reasonable depending on the specifics of that CU.

Appreciate the feedback and look forward to your thoughts on the additional potential guidelines and other areas the proposal can be improved.

4 Likes

Alright, then. Here are the reasons why I don’t think it’s a good idea to vote this into a MIP in its current form.

The purpose of this is unclear.

As an indication of the average MKR amount per team member, it’s not useful because that would require the team configuration to be defined. It’s understood that the amounts are relative, but not to what. What’s the baseline, a team of seniors, juniors, in what FTE proportion? Which profiles: engineers, lawyers, analysts, support, accounting? If this baseline isn’t defined, it’s not useful to define amounts.

Purely as an accounting category, it’s fine. But that has little to do with MKR comp as it would apply to the entire budget. If we want accounting categories, let’s vote on accounting categories.

This is okay if the MKR comp is part of the original set of MIPs. So, separate but simultaneous.

If it isn’t simultaneous, it’s a bad idea. You don’t hire an entire team and leave a substantial amount of their comp up in the air. The original motivation was that, else, “MKR voters arms get twisted.” The opposite is the case. Negotiating MKR comp once the team is already up and running is twisting the CU’s arm and deals more damage if a team that already started, decides to stop because they don’t agree with the MKR comp. Or it falls apart because certain team members quit because the MKR comp is lower than expected.

4 years is too long in a volatile environment like crypto. I suggest to reduce the maximum to 3 years so that we avoid a situation where governance practically has to fire a team because their bonus is unacceptably high after 3 years.

This is vague and doesn’t have any concrete consequences. Propose to leave it out.

This is concrete. It’s unclear how this will be checked, if at all. And it’s unclear if it’s necessary for governance to meddle in CUs’ affairs like this. With all the challenges before us to agree on details that we have to agree on, should we be voting in MIPs that define rules that aren’t really necessary to agree on? From the DAO’s point of view, the average and total MKR expenditure matters and what it gets in return.

For this one it would be useful to define a term. Will the amounts be reviewed on a quarterly basis or a different cadence? How will the amounts be voted on?

Overall, this proposal tries to oversimplify something that is inherently more complex. We should try and make things as simple as possible but not simpler because then we just end up with the original complexity anyway, plus a broken model.

4 Likes

I was but @Aes is in my CU (so maybe unfair, even if I don’t contribute to it). My impression is that it is quite fair, clear, and allows some flexibility with all the specific things we will face (in which linking MKR to an exponential version of the DAI compensation is not great). I see how to craft something that I’m comfortable with. Like Core Units MIPs, this MKR MIP will be extended by what I would call case law (case MIP?).

Having the perfect MKR compensation framework is one thing, having the most valuable protocol in DeFi another. I prefer to earn 2x less MKR but work for the most valuable protocol in DeFi.

I’m not saying that the multipliers are correct but somewhat reflect the MakerDAO view of the world. i.e. having a good UX and marketing is not important, and I would agree they aren’t in our current mental model. Corporate strategy meets compensation. Not saying it’s for the best (as a hint Apple (UX), Microsoft (sales?), Amazon (operations) are quite in front of Google (tech) in market cap). But they are good enough for an organization unable to define a strategy.

1 Like

Thanks, @SebVentures. Having someone like you being consulted always add a layer of quality.

MKR holders will not be voting on the multipliers.

I thought it was only me, but I find it quite saying that someone with your experience in Maker (and several others) is having a hard time interpreting this MIP.

Can you imagine how someone that wants to join Maker would feel?

1 Like

MKR holders will vote on the text. Illustrations and suggestions are part of the text. Let’s follow those suggestions and it will become custom.

It probably sounds worse than intended, but I read:
“Let’s put in numbers, when the Community questions them say that they’re just examples, and once they’re voted in we will say that they were actually not examples, but strong suggestions”.

I think I’m giving up on this topic. It does not reflect the state of conversation that was started, and it ignores obvious pitfalls in the name of oversimplification.

Why I think MKR holders should vote NO to this MIP:

:triangular_flag_on_post:It reintroduces the concept of domains (when they were abandoned in MIP38 to allow for Core Units to be multi-disciplinary). This is a huge red flag, as it sets a vision for the DAO disguised in “just example guidelines”.
:triangular_flag_on_post:It kills the possibility of thinking outside the (re)introduced domain box. This doesn’t seem right.
:triangular_flag_on_post:It introduces unnecessary rules without weighing the consequences.
:triangular_flag_on_post:It adds unnecessary overhead for reviewing guidelines (that are just suggestions). The process hasn’t even been defined and “the Community will do it” doesn’t cut it.
:triangular_flag_on_post::triangular_flag_on_post:As guidelines, they fall short of helping the future Facilitators. They probably introduce more confusion (as Contributors with a ton of experience are still wondering about the interpretation).
:triangular_flag_on_post::triangular_flag_on_post::triangular_flag_on_post:It overspends MKR, as the most junior, part-time position needs to be 1/10th of a superstar (this is not Ben & Jerry’s).

Happy to discuss this over a call if anyone think it’s needed.

1 Like

@juanjuan this MIP is 5 days into RFC, how about we try to make it better rather than campaigning against it already? It doesn’t feel like writing it off at this stage is really fair, nor much in the spirit of cooperation or consensus building.

As far as I can see @Aes responded to your last set of comments, to which you did not respond, except to say you’re giving up and that everyone should vote against it because of a completely different set of points that you didn’t raise in your first set of feedback.

For what it’s worth, I do think it would be better to make some of discussion points raised here more clear in the MIP text.

1 Like

As a hard-liner against MKR dilution, this is my chief concern with flatter compensation structures. If we’re not lying to ourselves, then there are certain positions that will need MKR for retention under any plan. So a more equitable ratio of MKR between top and bottom compensation simply lifts the floor for those who don’t actually need much or even any MKR to be retained.

I think this can be fixed, but don’t have a specific recommendation at hand. If that philosophically is a dealbreaker, then I guess I’ll be in @juanjuan’s camp. But as LFW said, we have lots of time so perhaps we can figure out how to bring the concerns to heel.

To be clear: I am in favor of as little MKR distribution as necessary. Note that if a group is being under-resources in DAI, then obviously that and other factors can be considered. But I’m not a huge fan of leveling compensation between those we pretty much have to give a bag of MKR to and those we don’t

2 Likes

I have been thinking about these compensation proposals a lot and I think the reason there is so much contention is that we’ve jumped a few steps ahead of the overall governance process.

Here’s the problem: Everyone proposing these frameworks is also seeking to be compensated by them. It’s basically organized labor. It’s the core units negotiating with the community, who does not necessarily represent the majority of MKR. The reason for this vacuum, in my opinion, is that the MKR holders are not sufficiently engaged with the governance process. They have requested governance delegates to remedy this, and I believe that delegates would be the best group to interpret, negotiate, and implement a compensation framework.

So my question is - would you be willing to withhold this MIP until there is at least 10% of the MKR supply in the hands of delegates? All CUs are receiving generous salaries and will not be going without compensation during the delay.

5 Likes

While there is an element of this, I will note that other community members have been engaged in the process as well at various times. Ironically Aes was more of a community member when we started this process, and is now potentially moving into a contributor role. Agree that it would be better to have more MKR Holders engaged with the process.

So that’s a question for @Aes more than me. Me being down as an author is a bit of a miscommunication, I should be down as a contributor, as I’m not making any final decisions as to content or this proposals progress in the governance cycle.

I don’t think it’s a bad idea to wait for delegates to launch (+ x weeks), personally. Though I know @Aes wanted to get it up asap. I’m less sure about holding it back until delegates have x% of the total supply, feels like a toss up at this point how highly delegates are empowered by MKR Holders, and I wouldn’t want anyone to commit to a certain percentage that might take months to reach.

1 Like