Compensation Algorithm

Gus’s proposal for this doc

Inputs 

Contributor Agreement

Market Rate / month

% Commitment

Monetary Compensation / month

⇒ Monthly Base Salary = Market Rate * Commitment

Assessment Scores

Work Contribution score - has the person delivered on their work commitment and role

Culture Impact score - has the person had a positive impact on the team culture

Performance Adjustment Rate (PAR) - indicates how much a person's salary can be adjusted based on the assessment scores. Suggested default is 20%.

The difference from the initial agreement based on the peer-to-peer assessment scores is first applied to the team points and only after they run out it is applied to the cash (only in the negative direction).

Base Salary can decrease if and only if teampoints compensation goes negative.

Points Multipliers

Time Contributions - this is the output of the above 3 points (agreement, assessment scores, PAR) - or the value a person brings to the team by their work. This multiplier determines how much are the team points valued (more than cash) that a person gets for their Time Contributions.

Default is 2X and it increases by 0.125 every 6 months until year 8 which serves a a form of reward for longer time commitment in the team:

0-6m = 2x

6m = 2.125x

1y = 2.25x

1.5y = 2.375x

2y = 2.5x

3y = 2.75x

4y = 3x

...

8y = 4x (stops increasing at 4x)

Material Contributions - this is of someone personally invests money, hardware, or something similar that has a direct monetary value. This multiplier determines how much are the team points valued (more than cash) that a person gets for their Material Contributions.

Default is 4X

Example

Algorithm Design

Step 1: Calculate Average Score for each contributor

Average score is the average value for each team member, based on all the feedback numbers they’ve gotten from their team.

Work Contribution score - average of all Work Contribution scores from team mates

Culture Impact Score - average of all Culture Impact scores from team mates

⇒ Monthly Average Score = average between Work Contribution score and Culture Impact Score

Step 2: Calculate the Salary Adjustment Multiplier for each contributor

Salary Adjustment Multiplier = (Average Score - 3) * Performance Adjustment Rate

Example: Performance Adjustment Rate = 10%; 

This rate indicates how much a person's salary can be adjusted per point deviation from a neutral score of 3. For a score of 1 to 5, the multiplier would range from -0.2 to 0.2.

Average Score = 4

Salary Adjustment Multiplier = (4 - 3)*10% = 0.1

Average Score = 1

Salary Adjustment Multiplier = (1 - 3)*10% = -0.2

Step 3: Calculate Individual Adjusted Salary

Calculate the adjusted salary for each contributor based on Salary Adjustment Multiplier.

Adjusted Salary = Base Salary*(1+SAM)

Example:

Expected Salary = $1200

Person 1: Base Salary = $1200, Score = 1 Adjustment Multiplier = (1 - 3) * 10% = -0.2 Adjusted Salary = 1200*(1 - 0.2) = $960

Person 2: Base Salary = $9000, Score = 5 Adjustment Multiplier = (5 - 3) * 10% = 0.2 Adjusted Salary = 9000*(1 + 0.2) = $10800

Person 3: Base Salary = $5000, Score = 3 Adjustment Multiplier = (3 - 3) * 10% = 0 Adjusted Salary = 5000*(1 + 0) = $5000

Step 4: Calculate Points Based on Multipliers

Different type of contributions have different multipliers:

Time contributions = default is 2X points and it increases by 0.125 every 6 months until year 8

The amount that a person doesn’t get in monetary compensation, they get in team points.

Example: For $1000 that a person doesn’t get in cash from their time contribution, they get 2000 team points.

Material contributions = default is 4x points

The amount of team points people get for their material contributions.

Example: For $1000 that a person invests with their material contribution, they get 4000 team points.