Surplus Distribution
Simon Tegg
Public
Seen by 154
How should the constitution guide or constrain the distribution of Loomio's profit/surplus?
My working definition of financial surplus is the money remaining from direct business revenue after operational costs, planned and ongoing capital reinvestment, and debt repayments have been made, and before taxes are paid. This may change after discussions with an actual accountant.
The main areas this money could go are:
Social good - the money goes to a "Loomio Foundation" of some sort which redistributes it to charities, social enterprises, or individuals that need help.
Contributor disbursement - the money goes to those who have helped build loomio through the two previously discussed mechanisms: Fluid equity and Contributor's share.
Cash reserve - the money sits in Loomio's bank account. It doesn't do much here except earn interest, but it can be very useful to have a good cash reserve on hand if Loomio were to extend its business model, or speed up development.
Things to keep in mind:
A balance between flexibility (i.e. making a decision the perogative of the board or the members) and constraint (making clear commitments to external stakeholders)
Increasing base salaries diminishes the surplus and the amount of money available to disburse past contributors who no longer work at loomio (but receive money through Fluid Equity or contributors share). People generally seem to prefer higher salaries to equivalent bonuses
Benjamin Knight Wed 20 Feb 2013 3:45AM
I think @vivienmaidaborn had a query about how much merit there is in specifying these parameters at all at this point (i.e. before we have any real idea of how the financial side of Loomio is going to look in a years time), and suggested it might be more productive to focus on developing principles for distributing surplus in a responsible values-affirming way so we can move forward with the constitution. Am I somewhere near conveying your point Vivien?
Simon Tegg Fri 22 Feb 2013 8:08AM
I suppose one statement that sits between a principle and a parameter would be that the social good disbursement is always larger than the total dividend disbursement
Joshua Vial Sun 24 Feb 2013 5:30AM
@simontegg slight correction - bucky is mandated to give no more than 33% of its surplus to shareholders once it has paid back an initial value (1M I think). Everything else is at the discretion of the directors.
Simon Tegg Sun 24 Feb 2013 9:03AM
One thing I think we need clarity on is what we do with donated revenue.
Mitar Sun 3 Mar 2013 8:07AM
What exactly is "Fluid Equity"?
Mitar Sun 3 Mar 2013 8:08PM
I am posting the link here, too. Have you seen how they distribute surplus at Valve? http://www.valvesoftware.com/company/Valve_Handbook_LowRes.pdf I like their idea of peer-evaluation.
Benjamin Knight Sun 3 Mar 2013 8:19PM
Great to see you in here @mitar!
We're big fans of the Valve handbook too! I think it's fair to say it influenced quite a lot of our thinking (which is maybe hard to tell from the scattered information in these Loomio threads - we're just starting to turn this Community group into an accessible place for information, but we have a fair way to go).
I would say that the brain of financial systems wizard @simontegg is best positioned to answer your question about fluid equity, since he masterminded it :)
I could give you the basics, but he'll do it much better!
Simon Tegg Mon 4 Mar 2013 10:16AM
@mitar I pinched the name "Fluid Equity" from from http://www.sensorica.co/home/working-space/value-reputation-roles/value-accountingthough our implementation is different. I'm going to cut and paste my answer to a similar question in another thread.
Loomio is considering two measures:
"Surplus Share" -an ongoing measure based on the cumulative time (paid and un(der) paid) a contributor has put in as a proportion of the total cumulative time. If Loomio allocates 10% of surplus to surplus share dividends and there are 10 people who have put in an equal amount of cumulative time, then each of those people would receive 1% of surplus in that year.
"Fluid equity" - a temporary payback measure for people who have put in unpaid or under-paid time. Fluid equity has four moving parts: (a) A valuation of the person's time; (b) the amount of money received for their work during this time; (c) a risk multiple; (d) an interest rate.
For example, a person's time might be valued at $100k/year full time (a), they may have worked full time for a year and only received $4ok (b) from the venture. They have therefore accrued $60k of 'raw' fluid equity. The collective may decide to apply a risk multiple of 3 to this time period (c), and an interest rate of 5% (d). The venture therefore 'owes' the contributor $180k, which inflates at 5% each year.
The risk multiple is based on stakeholder's perceptions of the risk of business failure in different time periods, the interest rate will probably be indexed to inflation. Once fluid equity is paid back the venture will have formerly discharged its obligation to compensate the contributor for investing time in a high risk venture. The contributor will still have a stake in the venture through Surplus Share (which I am proposing lasts for 7 years after a contributor has left Loomio -you may leave in the lean times and still receive benefits in the fat times). We just haven't decided how much of the surplus will be regularly returned back to contributors through these measures.
You may read more about this https://www.loomio.org/discussions/1701.
Simon Tegg · Tue 19 Feb 2013 11:21PM
I have proposed that the total contributor surplus distribution (both fluid equity and contributor;s share together) be limited to no more than 10 - 33% of direct surplus, and always less than the amount given to social good. But I really have no firm ideas here.
The only other data point is that Bucky gives 33% of surplus back to its shareholders.