Sushi Compensation Framework Proposal

Sushi Compensation Proposal
won’t somebody pay devs already

Summary: A typical VC will want the team to have enough skin in the game to be motivated to stay with the company and focus full-time. Sushi needs a similar structure in order for the team to execute well. This proposal outlines a potential solution that is along the lines of industry best practices. Things this proposal intends to avoid include upfront payment for work as well as unvested tokens. This proposal is meant to not agree on numbers, but to reach a consensus on the framework, down below, you’ll see levers proposed to determine salaries for various team members.

Abstract: Every defi project fundraising from VC’s reserves between 10% - 20% for team reserves. This is common practice with every major defi project fundraise from Paradigm, A16Z, Polychain, etc.

Currently (to my understanding) sushi reserves have about 11% of the supply. When teams and investors think about the allocation of these pools, they are considered much like equity pools. There is enough of an allocation left for the team at present time, and there is a remainder left over for future teammates.

In my opinion a split of 5% of this pool to the team is practical to allocate for team compensation. The reason being that Sushi has already launched, the market cap is high, the project is proven. So attempting to stay within the norms may be a bit frothy. This brings up a good point, that if a compensation structure like this was determined much earlier, the team would have been very well off and engaged. This allocation does run out eventually. If another pool of capital to allocate to the core team is necessary, Sushi can look at the projects in the ecosystem. Everyone can have its own coin, with a slice going back to the core team. This would encourage the core team to think of the big picture and to ensure that sub-projects bring value to sushi at the end of the day. This is the right feedback loop to keep everyone aligned from a business perspective and to create a larger unifying goal.

At time of writing the market cap is $857,821,118, 5% of this is $42.9M dollars. A typical seed round would have valued the tokens in the range of $30 - $40M. This means team tokens at time of first fundraise may be $3 - $4M in aggregate.

Let’s say the price of the token stabilizes around $100M at launch that slice becomes $10M, still lower than 5% at $800M market cap.

Its more helpful if a blanket approach is applied vs. bespoke to reduce implementation time and emotions. These can be structured to vest over 4 years like traditional equity (I’m not a fan of this, but its common practice).

Senior Leadership (can be one person or more) should be a lean operation, where decisions can be made quickly without micromanaging of trivial decisions. My gut feeling is that there should be a number one that understands the technical. And a number two person which is more operational and can block and tackle and handle entity management, payments, make sure all the gears are turning. This number two can also be tasked with bringing transparency and communication to the community.

0.5% x 4 is $4.29M over four years

2.0% x 1 is $17.16M over four years

Individual Contributor (it’s best if this is at discretion of leadership)

0.125% x 32 is $1.05M over four years each

0.25% x 16 is $2.1M over four years each

Let’s take a look at some high level numbers that are a bit broader, just to grasp the concept.

Market Cap $857,821,118.00
Team Percentage 5.00%
Team Slice (max) $42,891,055.90
HIGH Percentage Quantity Total Amount Annual Salary
Senior 0.50% 4 $17,156,422.36 $1,072,276.40
Principal 0.25% 16 $34,312,844.72 $536,138.20
MID Percentage Quantity Total Amount Annual Salary
Senior 0.25% 4 $8,578,211.18 $536,138.20
Principal 0.13% 16 $17,156,422.36 $268,069.10
LOW Percentage Quantity Total Amount Annual Salary
Senior 0.13% 4 $4,289,105.59 $268,069.10
Principal 0.06% 16 $8,578,211.18 $134,034.55

Motivation: To provide Sushi with a comp structure that is common across Tier-1 VC-backed defi projects.

Specification: Now, let’s tailor the numbers a bit more specifically to the project. Let’s assume a number one and a number two with a 70/30 split (this split is really hard to land on, but at the end of the day, just have to pick something and run with it).

The following numbers are the variables that can be altered based on community sentiment:

  • Market Cap
  • Team Allocation as Percentage of Market Cap
  • Allocation for Principals (individual contributors)
  • Number of Principals
  • Number of Senior Members
  • Allocation to senior members
  • Percentage split across varying senior members
MID Percentage Quantity Total Amount Annual Salary
Senior One 2% * 0.7 1 ~$12M $4M
Senior Two 2% * 0.3 1 ~$5.1M $1.28M
Principal (senior) 0.25% 8 $2.14M $536K
Principal (junior) 0.125% 16 $1.07M $268K

Additional Thoughts:

Sushi is well known for developing projects around its AMM ecosystem. There can be a model developed much like an incubator model where projects that are spun off issue their own token with a 10% allocation (or whatever) to the parent treasury multi-sig. This can push the core team to continue on their path of innovation while providing rewards after the main salaries dry up. Additionally this aligns the main KPI around driving the core metrics for sushi so that all apps work to push forward the sushi AMM and overall TVL and volume.

A message from Hard Rock NIck: https://twitter.com/masonic_tweets/status/1468689841604882433?s=20

Poll:

edit: Am changing this to be agreement on the framework and levers for compensation. Once the framework is agreed upon, then it makes sense to reach a consensus on numbers.

My concern with this proposal is that it does not capture the entire core team and contributors outside of developers. I also do not think a 4 year lock is reasonable as some of the team have already been contributing over a year. Early contributors should be given a higher stake or senior level status.

I still would prefer diverting a portion of platform fees that would be distributed to xSushi holders say 10% as a longer term solution as it would incentivize continued development and attract new talent. I feel a one time bonus from the treasury should be distributed and the amount should be further discussed based on past contributions, with maybe a 50% lockup over 2 years.

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I’ll think about solutions for folks that have been contributing already. Open to any ideas here.

Do you have more information on platform fees and what those look like and what they’re tied to? That could be really interesting to play around with and it would reduce the need to give up treasury tokens.

Thanks for preparing this. I question whether using ownership percentages to derive compensation is the right approach here. Sushi has been operating for quite some time, has already compensated folks, and has tapped into its reserves. How do we envision this evolves over time as Sushi scales? For example, a senior principal gets a 0.25% stake now, but what about a senior principal hired 3 months from now when Sushi’s price is 20% higher? Do they also get 0.25% ownership level even though they have not contributed to the value appreciation? That does not seem fair. I also find it difficult to evaluate a compensation program based on ownership percentages because the derived compensation values may be above or below market based on Sushi’s price at any given time.

Perhaps we evaluate the competitiveness of pay levels on a dollar-denominated basis? And then we use targeted ownership levels as a secondary gut-check to ensure leadership attains meaningful ownership over time and to ensure we are not overly dilutive/run out of tokens.

I realize that deviates from market practice and is more complicated, so I can be convinced otherwise, but I think we have an opportunity here to really develop a competitive compensation program that sets Sushi apart from its peers and sets precedent for future DAOs. We need to (1) retain talent, (2) attract talent, and (3) drive behaviors.

Areas to explore:

  • Establishing an annual comp program/review process: compensation levels could be reviewed annually by the community/delegated council and set every year. Contributors could receive an annual base salary/monthly pay (fixed pay) that is market competitive, as well as an annual performance-based component (variable pay) that is market competitive. These levels are reviewed and adjusted accordingly every year. The variable component can be a UMA KPI option with an annual performance target. This helps with retention, attraction, and motivation.

  • Make-Up Grant: I think current contributors may need to be right-sized if they think they have been undercompensated in the past relative to market. Historic pay levels can be evaluated on a dollar basis in two ways: (1) intended target pay vs market (i.e., was pay intended to be market competitive from the start?) and (2) intended target pay vs realized pay (i.e., how much were they targeted vs how much value have they already realized)? This will help us determine whether contributors have been undercompensated and, if they have, tokens can be awarded that make up for this loss (“Make-Up Grant”). These should be vested or should have short vesting period since this was awarded for completed service.

  • One-Time Special/Sign-on Grants: Given recent turmoil and to retain continuing contributors, a special up-front grant with a long vesting period (4-5 years) could be considered. This provides leverage given a low token price as well as helps folks with the targeted ownership percentages, as you outlined. The magnitude of the award should be based on pool availability, current ownership, and annual compensation levels (e.g., 3-5x of annual pay opportunity).

  • Ownership guidelines: To hold management accountable and to incentivize hodling, ownership guidelines could be implemented. Contributors could be required to hold 25-50% of vested tokens from variable pay / token grants until an ownership guideline is met (e.g., 2-3x fixed pay).

  • Alternatively we can implement a staking model where contributors are rewarded for staking their compensation.

Happy to help on any compensation proposal. I have experience designing executive compensation programs at public corps and startups. I recently started a consultancy aiming to advise on compensation for crypto protocols: (twitter - website ). Still in “exploration phase” (i.e., talking to teams and investors about how we can add value), but happy to collaborate with anyone on a compensation proposal on behalf of the community (for freeeeee)

Cryptowsky

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