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 entirely in Bitcoin. My firm, LSM Labs (lsm-labs.com), is one of them. That we offer this option at all should come as no surprise: We manufacture miners for both Bitcoin and Litecoin, so offering compensation in cryptocurrency seemed like a natural step. It serves as another way that we can show our support for something we think will truly change the world.
The ambiguity of one bitcoin
Upon offering Bitcoin compensation, it would have been easy to pat ourselves on the back and stop there. In fact, many companies do. If you were 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 the sake of discussion, let’s use the hypothetical salary of 1 bitcoin per week.
This may seem like a major revelation. After all, companies on traditional boards are rarely ever this forthcoming when it comes to salary. Some will give an absurdly broad salary range ($35,000 - $70,000). Others will state that the salary depends on experience. And in the worst cases, some companies will ask you to send your salary requirements to them, leaving you to play a wild guessing game.
Thus, in comparison, a stated salary of 1 bitcoin per week can seem unusually frank. However, this figure is misleading, given the volatility of the cryptocurrency. Just imagine you apply for this job when the value of 1 bitcoin is high, then you accept the position when it’s slightly lower, and finally you get your first payment after a huge drop. No matter how big of a Bitcoin enthusiast you are, you would not feel happy about working so hard for a pay-off that changes dramatically from week to week.
Despite this obvious issue, you will almost never see Bitcoin job listings that elaborate upon their compensation schemes. For example, do they offer some 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 you earn?
Alternatively, can they pay you via a compensation package that involves both fiat and cryptocurrency to better protect you against the latter’s volatility? 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 up with our own particular solution. For the employees who elect to be paid in Bitcoin, we tie their salary to a fixed dollar amount. So if an employee were to make $2,000 every two weeks, we would pay him the equivalent value in Bitcoin.
This system has two benefits. By tying the Bitcoin payment to a dollar value, the employee does not have to live and die on the volatility of the cryptocurrency. He will receive the same value on each payday, so he can budget accordingly.
Additionally, by giving the compensation entirely in Bitcoin, employees are free to support the community as much as they wish. They can spend their Bitcoin at the merchants that accept them, and in so doing, encourage other vendors to follow suit. And they can save their Bitcoin in the 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 that compensating our employees in something that they believe in and in a manner that is sustainable for them is well worth it.
Other entrepreneurs may disagree. They may think that employees should simply 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 would not hear a peep from them. So why should a company be held responsible when the swing in value does not go in the employee’s favor? Other entrepreneurs may agree on the need to make Bitcoin compensation fairer, but disagree on the best method to do so. Perhaps they think it’s better to package Bitcoin as part of a larger compensation scheme, or voluntarily increase the number of Bitcoins paid out if it were to drop below a certain price.
At this early of a stage, the exact solutions we choose are not so important. What matters is that we get a discussion going on the need to develop the best practices as they relate to Bitcoin compensation. For companies in the Bitcoin space, it is sometimes enough to simply recognize how much influence we wield on our industry: we don’t just lead the way - we determine where to go.