APR 18, 2014
Bitcoin Compensation Done Right
A growing number of companies are willing to pay their employees entirely in Bitcoin.
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A growing number of companies are willing to pay their employees entirelyin Bitcoin. My firm, LSM Labs (lsm-labs.com), is one of them.That we offer this option at all should come as no surprise: Wemanufacture miners for both Bitcoin and Litecoin, so offering compensationin cryptocurrency seemed like a natural step. It serves as another waythat we can show our support for something we think will truly change theworld.
The ambiguity of one bitcoin
Upon offering Bitcoin compensation, it would have been easy to patourselves on the back and stop there. In fact, many companies do. If youwere to click on one of the listings on a Bitcoin job board, for instance,you would see a job description followed by a salary in Bitcoin. For thesake of discussion, let’s use the hypothetical salary of 1 bitcoin perweek.
This may seem like a major revelation. After all, companies on traditionalboards are rarely ever this forthcoming when it comes to salary. Some willgive an absurdly broad salary range ($35,000 - $70,000). Others will statethat the salary depends on experience. And in the worst cases, somecompanies will ask you to send your salary requirements to them, leavingyou to play a wild guessing game.
Thus, in comparison, a stated salary of 1 bitcoin per week can seemunusually frank. However, this figure is misleading, given the volatilityof the cryptocurrency. Just imagine you apply for this job when the valueof 1 bitcoin is high, then you accept the position when it’s slightlylower, and finally you get your first payment after a huge drop. No matterhow big of a Bitcoin enthusiast you are, you would not feel happy aboutworking so hard for a pay-off that changes dramatically from week to week.
Despite this obvious issue, you will almost never see Bitcoin job listingsthat elaborate upon their compensation schemes. For example, do they offersome kind of safety net in case the value of Bitcoin – knock on wood –plummets? In such an event, could they increase the number of Bitcoins youearn?
Alternatively, can they pay you via a compensation package that involvesboth fiat and cryptocurrency to better protect you against the latter’svolatility? And if so, how can the package be divided between the two?
The power of the dollar
After thinking long and hard about these possibilities, we have come upwith our own particular solution. For the employees who elect to be paidin Bitcoin, we tie their salary to a fixed dollar amount. So if anemployee were to make $2,000 every two weeks, we would pay him theequivalent value in Bitcoin.
This system has two benefits. By tying the Bitcoin payment to a dollarvalue, the employee does not have to live and die on the volatility of thecryptocurrency. He will receive the same value on each payday, so he canbudget accordingly.
Additionally, by giving the compensation entirely in Bitcoin, employeesare free to support the community as much as they wish. They can spendtheir Bitcoin at the merchants that accept them, and in so doing,encourage other vendors to follow suit. And they can save their Bitcoin inthe hope that its value will always rise in the long run.
In the end, this system costs us more. So why do it? We believe thatcompensating our employees in something that they believe in and in amanner that is sustainable for them is well worth it.
Other entrepreneurs may disagree. They may think that employees shouldsimply absorb the volatility of Bitcoin if they elect to be paid in it.After all, if the value of Bitcoin were to rise dramatically, you wouldnot hear a peep from them. So why should a company be held responsiblewhen the swing in value does not go in the employee’s favor? Other entrepreneurs may agree on the need to make Bitcoin compensationfairer, but disagree on the best method to do so. Perhaps they think it’sbetter to package Bitcoin as part of a larger compensation scheme, orvoluntarily increase the number of Bitcoins paid out if it were to dropbelow a certain price.
At this early of a stage, the exact solutions we choose are not soimportant. What matters is that we get a discussion going on the need todevelop the best practices as they relate to Bitcoin compensation. Forcompanies in the Bitcoin space, it is sometimes enough to simply recognizehow much influence we wield on our industry: we don’t just lead the way -we determine where to go.