Evolution of Freedom
Part II: TEAM SPORT - Chapter 18
Workshare
Now that we understand the logic behind the multicellular society and the various dynamics that shape organizations, it’s time to design the ideal organization structure with the ideal incentive system. At the heart of a multicellular society’s cell should be a simple incentive system that rewards each participant with an ownership stake in the cell that is directly proportional to their contribution.
This can be articulated as our sixth hypothesis:
This can be articulated as our sixth hypothesis:
6. The best mechanism to reward team members of a cell is issuing small ownership stakes called workshares on the basis of the hours they have worked for the organization. Instead of being paid a salary, contributors are compensated with stock.
In the strictest version, ownership stakes in the cell can only be earned by performing work or through other contributions, and shares shouldn’t be awarded to investors. This is what distinguishes a cell from a corporation. Each workshare contains a vote with which a member can participate in the decisions of the organization, but we explore decision-making in more detail later in the book.
Cells issue a single workshare for every hour an individual works for the project. Depending how valuable each individual’s hourly contribution is, a cell can issue additional workshares on top of these time-based shares linked to performance. These additional shares can be based on internal evaluation scores other participants have assigned to the worker. This means that an experienced and highly valued talent gets more shares in the organization per hour than an inexperienced worker.
The ability to receive additional shares is a way for projects to compensate for expertise, efficiency and work of varying value. This flexible compensation model is a way for projects to attract talented people who wouldn’t otherwise be interested in joining the project in question. How the workshares are distributed defines the internal compensation structure of a project and the share of the cake everybody receives.
There are also contributions that cannot be measured in hourly output, for example when someone comes up with a valuable invention. Here the participant can be rewarded with a direct share, like 5% of the whole organization. While this kind of arrangement can be warranted in certain situations, it should be noted that a direct share acts like a tax on all the other team members. If the contribution that earned the direct share brings in tangibly more income, it may be perfectly justified, but this should be carefully considered.
When a cell receives income from one of its customers, the money is first used to pay any outstanding expenses. When this is done, the rest is shared equally among every workshare. This means that cells pay their salaries in the form of a dividend.
If we study workshares as a concept we have designed using the principles of mechanism design, we can see the numerous benefits it creates. The ability to issue stock aligns every participant’s incentives with each other’s, which results in many positive behavior changes. Every participant has skin in the game and they are motivated by the same outcome. It is now in every participant’s interest that the project succeeds. Nobody is getting paid before the project is finished. The higher and better quality their output, the more valuable the final payout is likely to be. Since workshares are issued only to workers and other participants, the recipients are perfectly positioned to affect the final outcome.
This alignment of incentives is likely to produce a much better end result than when there is a mismatch of incentives. Compare this to how a corporation works. Instead of sharing the same incentive, owners and employees have completely separate incentives. Since employees are compensated upfront, they have no direct financial incentive in the quality of the project’s output or the ultimate financial outcome. The profit or loss is the exclusive domain of the owner.
There is also another change. Since every hour worked generates a new workshare, they dilute the value of all pre-existing shares. This creates a positive incentive for everybody to weed out all inefficiencies so that their shares are not diluted. It is in every worker’s interest that all work is completed as quickly and efficiently as possible. People come to work only to perform their necessary functions. Prolonging work just for appearances’ sake benefits nobody. This is a dynamic you don’t see in corporations, because the cost of inefficiencies doesn’t come directly from the pockets of other employees but from the pockets of the owners.
Now, somebody might say, wait a minute! If people are getting paid only after profit sharing, how are people supposed to pay rent and buy food in the meantime? This is an important question, and we will address this later in the book.
With the ability to issue workshares, cells can create tremendous liquidity and in this sense workshares can be compared to market money and promissory notes. Where market money is an individually issued currency backed by the productivity of the issuer, a promissory note is a privately issued loan backed by the future income of the issuer. What unites workshares with market money and promissory notes is the fact that all three can be privately issued by enterprises without external cost or outside interference. The added liquidity helps overcome cash crunches and other financial bottlenecks.
What separates workshares from market money and promissory notes is that the payouts for the latter are fixed, whereas workshares are promises to pay a share of the future income the cell generates. The exact future payout is often purely speculative, dependent on the outcome of the project and the number of hours of work it took to produce.
Issuing workshares offers a sophisticated way to allocate ownership in joint ventures without the need for capital. It gives agency to every citizen and productive individual. Everybody has the opportunity to cobble together projects from idle resources and turn the results into income. Since a cell can start issuing shares long before the project has generated any income, the work can commence immediately and potential financial bottlenecks are avoided. This creates tremendous liquidity and flow within the system.
It should be emphasized that workshares should be issued as a function of time. What makes time such an ideal measuring unit is that it is both finite and renewable, and that everybody has the exact same amount of it. By anchoring workshares to this fundamental measuring unit of physics, we help equalize wealth distribution in a way that will moderate economic inequality. The full logic behind this design choice will be made clear later as we integrate it fully with our overall design of the system.
How to generate stable forms of cooperation is an enduring question of both evolutionary science and game theory. Now that we have identified the best way to incentivize cooperation within the cells, or sports teams, we have to come up with the best way to incentivize cooperation within the multicellular society, or sports league, when these cells compete against each other. This is the other half of creating competitive cooperation. In evolutionary terms, the question is which qualities should we select for?
The obvious answer is that we want to create a competition in which groups that benefit the community win over groups that harm the community, and are financially rewarded for it. The cells compete in their ability to create well-being for the community.
Cells issue a single workshare for every hour an individual works for the project. Depending how valuable each individual’s hourly contribution is, a cell can issue additional workshares on top of these time-based shares linked to performance. These additional shares can be based on internal evaluation scores other participants have assigned to the worker. This means that an experienced and highly valued talent gets more shares in the organization per hour than an inexperienced worker.
The ability to receive additional shares is a way for projects to compensate for expertise, efficiency and work of varying value. This flexible compensation model is a way for projects to attract talented people who wouldn’t otherwise be interested in joining the project in question. How the workshares are distributed defines the internal compensation structure of a project and the share of the cake everybody receives.
There are also contributions that cannot be measured in hourly output, for example when someone comes up with a valuable invention. Here the participant can be rewarded with a direct share, like 5% of the whole organization. While this kind of arrangement can be warranted in certain situations, it should be noted that a direct share acts like a tax on all the other team members. If the contribution that earned the direct share brings in tangibly more income, it may be perfectly justified, but this should be carefully considered.
When a cell receives income from one of its customers, the money is first used to pay any outstanding expenses. When this is done, the rest is shared equally among every workshare. This means that cells pay their salaries in the form of a dividend.
If we study workshares as a concept we have designed using the principles of mechanism design, we can see the numerous benefits it creates. The ability to issue stock aligns every participant’s incentives with each other’s, which results in many positive behavior changes. Every participant has skin in the game and they are motivated by the same outcome. It is now in every participant’s interest that the project succeeds. Nobody is getting paid before the project is finished. The higher and better quality their output, the more valuable the final payout is likely to be. Since workshares are issued only to workers and other participants, the recipients are perfectly positioned to affect the final outcome.
This alignment of incentives is likely to produce a much better end result than when there is a mismatch of incentives. Compare this to how a corporation works. Instead of sharing the same incentive, owners and employees have completely separate incentives. Since employees are compensated upfront, they have no direct financial incentive in the quality of the project’s output or the ultimate financial outcome. The profit or loss is the exclusive domain of the owner.
There is also another change. Since every hour worked generates a new workshare, they dilute the value of all pre-existing shares. This creates a positive incentive for everybody to weed out all inefficiencies so that their shares are not diluted. It is in every worker’s interest that all work is completed as quickly and efficiently as possible. People come to work only to perform their necessary functions. Prolonging work just for appearances’ sake benefits nobody. This is a dynamic you don’t see in corporations, because the cost of inefficiencies doesn’t come directly from the pockets of other employees but from the pockets of the owners.
Now, somebody might say, wait a minute! If people are getting paid only after profit sharing, how are people supposed to pay rent and buy food in the meantime? This is an important question, and we will address this later in the book.
With the ability to issue workshares, cells can create tremendous liquidity and in this sense workshares can be compared to market money and promissory notes. Where market money is an individually issued currency backed by the productivity of the issuer, a promissory note is a privately issued loan backed by the future income of the issuer. What unites workshares with market money and promissory notes is the fact that all three can be privately issued by enterprises without external cost or outside interference. The added liquidity helps overcome cash crunches and other financial bottlenecks.
What separates workshares from market money and promissory notes is that the payouts for the latter are fixed, whereas workshares are promises to pay a share of the future income the cell generates. The exact future payout is often purely speculative, dependent on the outcome of the project and the number of hours of work it took to produce.
Issuing workshares offers a sophisticated way to allocate ownership in joint ventures without the need for capital. It gives agency to every citizen and productive individual. Everybody has the opportunity to cobble together projects from idle resources and turn the results into income. Since a cell can start issuing shares long before the project has generated any income, the work can commence immediately and potential financial bottlenecks are avoided. This creates tremendous liquidity and flow within the system.
It should be emphasized that workshares should be issued as a function of time. What makes time such an ideal measuring unit is that it is both finite and renewable, and that everybody has the exact same amount of it. By anchoring workshares to this fundamental measuring unit of physics, we help equalize wealth distribution in a way that will moderate economic inequality. The full logic behind this design choice will be made clear later as we integrate it fully with our overall design of the system.
How to generate stable forms of cooperation is an enduring question of both evolutionary science and game theory. Now that we have identified the best way to incentivize cooperation within the cells, or sports teams, we have to come up with the best way to incentivize cooperation within the multicellular society, or sports league, when these cells compete against each other. This is the other half of creating competitive cooperation. In evolutionary terms, the question is which qualities should we select for?
The obvious answer is that we want to create a competition in which groups that benefit the community win over groups that harm the community, and are financially rewarded for it. The cells compete in their ability to create well-being for the community.
