Dynamically steering compensation (Joost Schouten)

Summary

Nestor operates under a partnership model, eliminating traditional employer-employee relationships. Employees are seen as partners and compensated with equity-based options rather than fixed salaries. Compensation is dynamic, consisting of stock options, cash equivalents, and flexible equity units. The system is competency-based, rewarding partners based on their contributions and roles. Nestor also incorporates transparent governance, allowing partners to propose changes. The model ensures flexibility in compensation, aligning with the company’s financial situation while honoring personal needs. A celebration ritual is introduced to foster recognition and gratitude among partners, ensuring a holistic approach to compensation and company culture.

Takeaways

• 😀 Elimination of the traditional employer-employee relationship: Nestor operates with partners instead of employees, removing the parent-child dynamic often present in conventional work structures.
• 😀 Flexible compensation model: Partners are compensated using different types of shares (A units, P units, Duns, and C units), with a focus on equity-based pay rather than fixed salaries.
• 😀 A units currently in use: Right now, compensation is provided in the form of stock options (A units) and cash (P units), with other share types expected to be implemented in the future.
• 😀 Purpose-driven compensation: The model is designed to prioritize Nestor's long-term purpose, ensuring the company doesn't go bankrupt while respecting individual financial needs.
• 😀 Governance and transparency: Nestor follows a governance system where everyone can propose changes to the compensation plan, ensuring fairness, transparency, and adaptability.
• 😀 Market rate alignment: While the company operates on a flexible pay model, it still ensures that compensation is aligned with market rates to attract top talent, especially in competitive fields like software development.
• 😀 Livable baseline: The baseline monthly salary is set at $5,500 USD, designed to be a livable amount for most of the world, ensuring that financial needs are met while maintaining a sustainable business model.
• 😀 Competency-based pay: Partners are compensated based on the competencies they bring to Nestor, with only the top two competencies being compensated to maintain fairness and avoid inflated pay.
• 😀 Adaptability for personal needs: The compensation model is flexible, allowing for adjustments based on individual needs, with room for special exceptions through governance decisions.
• 😀 No valuation-based equity: Instead of basing equity on a company valuation, Nestor compensates partners according to their time, investment, or IP contributions, and offers a multiplier for different types of investment (time, money, or IP).

Q & A

What is the main difference between employees and partners at Nestor?

At Nestor, all individuals are considered partners, not employees. This eliminates the typical employer-employee, parent-child relationship. Instead, partners are compensated with equity or stock options, giving them more flexibility and ownership in the company.

How does Nestor compensate its partners?

Nestor compensates its partners using different types of equity, such as A units (stock options), P units (cash equivalents), D units (debt instruments), and C units (equity). Currently, the company primarily uses A units, allowing them to compensate partners in stock options or cash, depending on the company's financial situation.

What are the key principles of Nestor's compensation model?

The principles include protecting Nestor's purpose, offering a livable and safe baseline for all partners, ensuring transparency, honoring market rates, and being adaptable to personal needs. The compensation model also emphasizes governance, so all decisions are made collectively and transparently.

What is the baseline salary at Nestor, and how does it vary?

The baseline salary at Nestor is 5.5K USD per month for full-time roles. This baseline is applicable to most of the world, though it may vary depending on geographic location. The compensation can increase based on the competencies a partner demonstrates.

How does Nestor assess and reward competencies?

Nestor assesses competencies by creating a list of key competencies needed to fulfill the company's purpose. Partners are evaluated on a scale of 0-3 for each competency, and only the top two competencies are rewarded with compensation. The company strives to keep compensation within a reasonable range to prevent over-compensating generalists.

How does Nestor handle compensation when there are cash flow challenges?

If Nestor faces cash flow challenges, the company has a policy to reduce cash payouts and compensate partners with equity or stock options. This allows the company to continue compensating partners without going bankrupt, ensuring that the company’s purpose remains the focus.

How does Nestor ensure transparency in compensation decisions?

Nestor maintains full internal transparency regarding compensation, ensuring that all partners are aware of how decisions are made. However, the company decided not to fully disclose compensation externally to respect individual privacy. The decision-making process is rooted in governance, and everyone can propose changes.

What is Nestor's policy on personal financial needs?

Nestor allows for flexibility when a partner has increased personal financial needs, such as a sudden bill. In some cases, the company has made exceptions, providing more cash or adjusting compensation based on the partner’s needs. These decisions are made through governance, not by one individual.

How does Nestor handle equity distribution and valuation?

Nestor distributes equity based on the contributions of time and money rather than predicting future company valuation. For instance, if a partner works without pay, they receive stock options at a 1.5x multiplier for each dollar of unpaid income. The company also offers higher multipliers for financial investments, acknowledging the increased risk associated with capital investment.

How does Nestor deal with the uncertainty of valuation at an early stage?

Nestor avoids focusing on company valuation at early stages since it’s difficult to predict. Instead, the company compares investments made in terms of time and money. This model allows for equity compensation without needing to assign a value to the company prematurely, which is particularly important for startups in the software industry.