Part VI, Chapter 15
Compensation and Incentives

DAO compensation and incentives are put in place to act as a catalyst for productivity and member engagement with the purpose of reaching the goals of the organization. A good place to begin in understanding the structures set up for compensation & incentives within the DAO would be token-based compensations. To represent voting rights which can be interpreted as ownership within the organization, DAOs can issue tokens for the taking. When members contribute to the success of the DAO through participation in governance, community building & marketing amongst other areas of need, they are positioned to earn tokens. These tokens are accompanied by voting powers which place members in spots to participate in decision making processes. Possibly, a DAO can choose to make participation more attractive by attributing additional voting power to higher levels of contribution from members. It’s simple - do more for the DAO and expect more from the DAO. Keen on creating a new order - decentralization - DAOs cannot afford to be a one-hit-wonder and thus, they must work with long-term goals and have structures which can stand the test of time and/or members who are in for the long haul. Achieving this may require a process known as token-vesting which will have the DAO “keep” tokens to be released over a certain period of time for investors & contributors. This is similar to the implementation of staking mechanisms that gives room for members to willingly lock up their tokens in exchange for rewards or with the goal of participating in governance. By locking up their assets, members have helped with maintaining the security of the network’s blockchain. Having members who are bound by a single interest or goal of DAO automatically means that a section of people may have ideas for the betterment of the DAO and yet have no skill to proceed with the proposal or execution of this idea. In cases like this, DAOs can introduce Grants & Bounties. When a task is set in place by a member who needs help with it, other members can complete this task and claim the bounty on it or receive grants as individuals or as a team. Compensation and incentives within a DAO can promote active participation and lead the DAO towards its goal. Members of the DAO who believe in its goal and are willing to work with the structure set in place must be able to see a trail of rewards for the engagement they stir up within the community. Performance-based incentives such as recognition, badges, tokens, additional privileges and a host of other incentives will be a response to goal-reaching activities within the DAO.

Token-based compensation models

Token-based compensation models are created to align interests within the organization and thus, they are typically tailored to fit in with the goals, governance structure and resources available for a DAO. It is possible to have a DAO test or combine certain token-based compensation models over the course of time to see which one best suits its structure and then weigh the best possible methods for rewarding contributors and incentivizing participation. The transparency policy for DAOs makes it important for fair treatment to become a norm and thus, contributors can easily trace the “profit” of their good work/contributions to the DAO. It is common to find contributors being directly compensated with tokens for the value they bring to the DAO in areas such as community engagement or marketing. It is also possible to have DAOs use Key Performance Indicators as a way to set targets, measure contributions and reward contributors who meet or exceed these targets. DAOs are held up by the community and in line with that, tokens can be given as reward for community-centric activities which include but are not limited to event organization and the hosting of workshops.

Incentivizing Contributions and participation

Generally, DAOs endeavor to provide motives or rewards that encourage active participation from members of the community. They can come in the form of financial rewards or opportunities within the DAO. Contributions from participants as well as the sole work of participating can be rewarded on an individual scale and for a group of members as well within the community. Contributions and participation are the major triggers for incentivization within the DAO. A committed community can make all the difference for a DAO.