In the meeting minutes from the March 2022 Hedera Council meeting, I noticed individuals who are elected to Hedera’s Board of Directors or other leadership roles will soon be able to receive compensation for their Hedera work. Can you explain what this new plan is, who will be eligible, and how it will work?
This article has been updated to reflect the final set of participation and performance requirements as approved by the Hedera Governing Council and Board of Directors.
Update as of March 2, 2023:
On March 9, 2022, Council members approved high-level terms for an hbar compensation program for Board members, committee chairs, and transaction signers, given the critical role each plays in Hedera’s decentralized governance and operations. The objective of the program is to incentivize well-qualified individuals to dedicate the significant time and effort required to provide excellent service in support of Hedera’s decentralized governance activities.
After considering benchmarks from both public and private companies, as well as the significant time and effort involved in various roles (typically significantly exceeding the time and effort required for analogous roles in other organizations), Council members approved an annual hbar stipend of up to $250k worth of hbars for directors, up to $100k worth of hbars for committee chairs, and up to $50k worth of hbars for transaction signers. All such compensation is subject to specific performance obligations, set forth below.
As previously disclosed in the Council minutes dated August 10, 2022, Council members also approved a $200k hbar stipend for pre-2022 service for three directors who dedicated a significant amount of time to Hedera governance activities prior to 2022.
When the contributor compensation programs were first announced, Hedera noted that the service requirements were still being defined and that the participation and performance requirements for each role would be published after they were finalized. The final participation requirements for 2022 are set forth below.
The current set of participation and performance requirements are as follows:
- Directors. As set forth in Hedera’s LLC Agreement, the Hedera board may have up to seven voting directors, all of whom are elected by the Council Members. Directors may be affiliated with Council Members or independent. Hedera Directors are eligible for contribution compensation subject to the following participation criteria:
Attend all Board meetings for that quarter and be prepared by reviewing relevant materials, participating in email discussions, and researching topics under deliberation.
Vote on all matters up for Board decision in the meetings attended, unless not available due to a pre-arranged absence.
Directors may have one unexcused Board meeting absence for every 6 consecutive meetings and still be eligible to receive the quarterly compensation. Any other absences will be considered excused only if prior written notice of such absence was provided to the Chair.
|$31,250 worth of HBAR|
Attend all Council meetings for that quarter that occur between 7 a.m. and 10 p.m. in such person’s local time zone and be prepared by reviewing relevant materials, participating in email discussions, and researching topics under deliberation.
Directors may have one unexcused Council meeting absence for every 6 consecutive meetings and still be eligible to receive the quarterly compensation; provided that prior written notice of such absence was provided to the Chair.
|$12,500 worth of HBAR|
Act as an official representative of the Hedera Council, which shall be documented in a Hedera-provided form.
Because the participation requirements were established in September 2022 and required documentation for such activity was further clarified in February 2023, Directors shall have until September 30, 2023 to complete up to 4 qualifying "Official Representation” activities under this 2022 Director Compensation Plan. For the avoidance of doubt, Directors may not be paid twice for the same activity.
|$6,250 worth of HBAR per activity|
|Because a multi-signature wallet was not provisioned for the Board to govern on-ledger Board-approved transactions in 2022, compensation amounts allocated for Transaction Signing services shall be earned and payable on a pro rata basis based on Directors’ satisfaction of the “Board Meetings and Voting” criteria set forth above.||$12,500 worth of HBAR|
|Maximum quarterly payment||$62,500 worth of HBAR|
|Maximum annual payment||$250,000 worth of HBAR|
- Committee Chairs. Hedera Council currently has five active committees. Committees are an integral part of Hedera’s decentralized governance structure and are responsible for making certain recommendations to Council (for example, the Membership Committee researches, questions, and recommends prospective members to Council) and exercising specific delegated authority as set forth in the applicable committee’s charter. Hedera committees may have one or two chairs, who are eligible for contribution compensation subject to the following participation criteria:
Lead at least one Committee meeting a month, which includes drafting and circulating agendas and relevant meeting materials at least 72 hours prior to regularly scheduled meetings.
Committee Chairs may have one excused absence for every six Committee meetings and still receive the quarterly compensation, but such absence must be pre-arranged in writing with the other Committee Chair (if any) and with the Hedera Chair; provided, however, that absence from Committee meetings occurring outside 7 a.m. and 10 p.m. in such person’s local time zone shall be considered an excused absence.
|$15,000 worth of HBAR|
|Provide written monthly reports to the Council or Board||$5,000 worth of HBAR|
|Attend all Council meetings for that quarter that occur between 7 a.m. and 10 p.m. in such person’s local time zone and be prepared by reviewing relevant materials, participating in email discussions, and researching topics under deliberation.||$5,000 worth of HBAR|
|Maximum quarterly payment||$25,000 worth of HBAR|
|Maximum annual payment||$100,000 worth of HBAR|
- Transaction Signers. Council Members are responsible for signing certain network transactions, such as to update node software or to move coins out of Hedera’s treasury. Council Members assign transaction signing responsibility to certain individuals, and those individuals who sign transactions on behalf of Council Members are eligible for contribution compensation subject to the following participation criteria:
|Digitally sign all Hedera network transactions sent by Hedera to Council Members for their digital signatures prior to the expiration time of the transaction(s) (subject to the minimum 72-hour signing window described above)||$12,500 worth of HBAR|
|Maximum quarterly payment||$12,500 worth of HBAR|
|Maximum annual payment||$50,000 worth of HBAR|
Hedera staff, with oversight from Council Members and the Board, as applicable, are responsible for tracking compliance with the service requirements.
The number of hbars to be transferred pursuant to the stipends for service in 2022 were calculated using the average opening hbar price for the last month of the quarter in which such service was provided, and payments will be made as one lump-sum payment to each individual recipient for 2022 compensation, scheduled to be distributed in March 2023. For service in 2023 and onward, payments are expected to be made on a quarterly basis, calculated and distributed within 14 days of the end of each calendar quarter.
Original post from May 2022:
Recently Hedera shared publicly that, with the next phase of decentralization at Hedera and the significant amount of time and effort required of Hedera board members, Hedera’s board members will be eligible to receive compensation, as is standard practice at both public and private companies.
As set forth in Hedera’s LLC Agreement, the Hedera board may have up to seven voting members, all of whom are elected by the Council Members. Board members may be affiliated with Council Members or independent. Hedera board members are expected to:
- Attend all regular meetings as well as ad hoc meetings. Regular meetings are currently held every 2 weeks and typically run for 1.5 to 2 hours.
- Prepare for each meeting by reviewing relevant materials, participating in email discussions, and researching topics under deliberation.
- Leverage their professional expertise and professional networks to ensure informed, effective governance.
- Educate themselves and vote on matters up for board decision, either in meetings or via electronic ballots.
- Act as a representative of the Council to external parties, which may include opportunities for public speaking or engaging with industry bodies and stakeholders.
In light of the considerable time and effort required of board members, individuals who serve on the board and remain in good standing will be eligible for compensation in the form of an hbar grant with a fair market value up to $250,000 per year, provided they meet participation and performance requirements. Hedera Committee chairs may also earn an annual stipend of up to $100,000 in recognition of the time and effort required to serve in these roles, again, provided they satisfy certain participation and performance requirements. Consistent transaction signers may receive an annual stipend of up to $50,000 annually for their ongoing work, which includes:
- Attending required meetings to review details and confirm the accuracy of pending transactions, such as the addition of new Council Members to the mainnet, transfers of coins from the treasury account, or updates of the network codebase.
- Having 100% participation in signing transactions during a given calendar quarter. This includes regular monthly transactions and any ad-hoc transactions where a minimum of a 6-day signing window is provided.
- Providing visual evidence of how they are securing the signing device in accordance with Hedera’s Transaction Signing Policy.
- Performing verifiable monthly updates and maintenance of signing hardware to ensure continuing operability and security of signing keys.
These engagement incentive programs are still being designed, which is why more details have not been published beyond the simple reference to the program in the Council meeting minutes. The Hedera Council intends to publish the final set of participation and performance requirements for each role when they are completed and approved.
While Hedera Board Members have not been previously compensated, that is the exception, rather than the norm, when it comes to serving on company boards. Harvard research on Trends in U.S. Director Compensation found that “The total average compensation for S&P 500 non-employee directors from May 16, 2018 through May 15, 2019 was $304,856, as calculated by Spencer Stuart. The total mean compensation for Russell 3000 companies was $167,013, based on 2019 disclosure documents.” In addition, the majority of boards of Russell 3000 companies meet less than 8 times a year; Hedera board is currently expected to meet at least 26 times in 2022 (and those Board meetings are in addition to the expected 12 Council meetings).
The piece below shares more on the Five Types of intelligence and skills required for successful board service, https://hbr.org/2020/01/are-you-ready-to-serve-on-a-board.