Temporary incentive rights

Contributions should receive temporary incentive rights so that contributors can benefit from the full value of their contributions.

Principle

Contributions should receive temporary incentive rights so that contributors can benefit from the full value of their contributions.

Incentive rights

Incentive rights help to ensure that contributors will receive the full value of their contributions. All financial capital and labour contributions should receive incentive rights. Labour and financial capital contributions that take on initial risk during the beginning of an organisation will need to receive a fair return based on that risk. The incentive rights that these contributions should receive include:

• Right to a fair reward - Contributors should be entitled to a fair reward for their contributions based on the value that has been provided. For financial capital investors this could be a return that reflects the risk of potential loss by investing into the organisation. For labour contributions there might need to be periodic reflections about their contribution to understand what impact and value has been generated over the long term so that a fair reward can be determined.

• Right to transfer - Contributors that receive incentive rights should be allowed to transfer these rights to other people if they want access to money in the short term. Those buying the incentive rights would be taking on the risk that the organisation would fail so these investors would likely pay a lower value than the rights are potentially worth to reflect this risk.

Problems with permanent incentive rights

• Recent contribution value dilution - If incentive rights from historical contributions do not lapse there would be an ever increasing amount of incentive rights that need to be compensated in the organisation. This would dilute the value of recent contributions due to the majority of the organisation's profit being used for compensating historical incentive rights. Incentive rights are an important solution for rewarding historical contributions over a period of time. However at some point those incentive rights need to lapse so that new contributions can receive a fair reward based on their value. If incentive rights don’t lapse the workers in an organisation would eventually have an increasing incentive to leave and start a new organisation due to the fact that most of the value and reward of their own labour contributions is going towards historical contributions rather than paying for their own efforts.

• Overcompensation of historical contributions - Organisations that are operated over a number of decades could create situations where early contributions are excessively rewarded even though those contributors are not actively contributing towards the organisation anymore. The early contributions also might not have been the most impactful contributions that determined the recent successes of the organisation yet they are still being rewarded as if they were still highly important to the organisation. A balance needs to be struck between rewarding historical contributions the full value they have generated with the need to respect the value of recent contributions by eventually lapsing the incentive rights of historical contributions.

Contributions that could receive temporary incentive rights

• Labour - The value of labour contributions are sometimes not known at the time they are made. Labour contributions highly benefit from incentive rights so that the organisation can reflect on the importance of historical contributions and which ones have been the most important for generating any recent success for the organisation.

• Capital - The value of a financial investment is known at the time it is made as it is a fixed amount that the organisation is receiving. To make an investment agreement the organisation and the investor need to decide on what the risk of failure is for the organisation. This risk then needs to be converted into a fair return on investment. The parameters of the loan then need to be agreed on when the organisation will start paying back the investor. This loan gives the investor incentive rights on future income of the organisation based on the agreed parameters of the loan.

Contributions that would not receive incentive rights

• Donation - Donations are given without an expectation for return so these contributions would not be applicable for incentive rights.

• Consumption - Consumer contributions don’t need to receive incentive rights as in a market economy the consumer is exchanging their money for goods and services.

Limited incentive rights duration

Contributions should receive incentive rights that last long enough for them to be compensated based on the value and impact that was generated. For some organisations this could be ten years or more due to the amount of time it takes to develop new innovations. For other organisations, such as a restaurant or service business, the long term value and impact of many contributions might not need more than a few years for their value to be fully realised and respected. It is important to limit the duration that a contribution can be rewarded as a perpetual incentive right would mean contributions could become increasingly overcompensated over the long term. This overcompensation could occur at the expense and exploitation of future contributions that are now responsible for operating the organisation.

Handling extraordinary contributions

An individual could make an extraordinary contribution that has a very long term positive implication for a local community or society more broadly. These types of contributions can be more difficult to evaluate and reward within an organisation due to the scale and impact of the contribution. These contributions could require ongoing reflection about how much impact has been generated. A balance needs to be struck between rewarding these contributions fully and also ensuring that other contributions in the organisation are not exploited to generate the reward. A society that encourages and rewards contribution will be one that actively celebrates and rewards these types of contributions more broadly. Contributors responsible for generating large amounts of impact could be rewarded financially or shown greater appreciation by the wider community. Some examples of these types of awards that help to show appreciation for highly impactful contributions include the Nobel prize, Breakthrough prize, Fields medal, Turing award, Lasker award, Copley medal, Wolf prize, Kyoto prize and the Millennium technology prize.

Principle compliance

All incentive rights should have a defined end date so that they aren’t valid in perpetuity. Incentive rights should last long enough so that a contributor can receive the full value from their contributions. Any additional clauses and policies should be clear such as whether the holder is able to sell their rights to other people. If incentive rights can be sold, it will be important for people to know whether there are any changes or restrictions to those rights for those people that have bought them. Incentive rights that can be sold may also benefit from the transfer of governance rights from the original holder so that the interests of the investor can be protected. Organisations will need to determine whether incentive rights can be sold independently of governance rights or not.