164 lines
13 KiB
Markdown
164 lines
13 KiB
Markdown
---
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title: Compensation Models When You Have No Money
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collection: The Money Question
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path: The Money Question/Compensation Models When You Have No Money
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parentDocument: null
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outlineId: 897d5d63-96ba-46ae-9664-ce6e6d1946d1
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createdBy: Jennie R.F.
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---
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Money is hard. Money has traumatized many of us. But of all the conversations a new studio needs to have, this one – the one that usually gets put off – is most necessary.
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When there isn't any, that conversation can feel pointless, or like you're just pretending to be a business while everyone quietly wonders how long they can keep volunteering.
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But money shows up eventually. You'll get a grant or a contract; you'll sell a copy (or 1,000 copies!) of your game, and suddenly you'll need a plan you haven't made. Everyone will be anxious about who gets what. You'll wonder why you didn't just talk about it sooner!
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The game industry's defaults for this situation are work for free and hope, let whoever has savings bankroll everyone else, promise people "equity" without defining what that means, or founders take the money and run.
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These are extractive patterns we're all trying to avoid.
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Here's the cooperative alternative. Sit down together and make decisions about how money will flow. Don't obsess over a perfect system; all you need is a basic agreement and a plan to revisit it as things change. The model you come up with today is just a starting point.
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## Before you pick a model, know your numbers
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Before you can decide what's fair, you need to know what's real.
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Each member should answer two questions – privately first, then with the team (as much as they are comfortable):
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#### 1. What do I need to survive every month?
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Think about: Rent, food, healthcare, childcare, medication, debt payments. You're not trying to come up with your ideal salary – just the baseline that you *need* to keep going.
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#### 2. What can I give?
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How many hours per week can you *realistically* put toward the studio? Can you put in any cash or equipment? Any clients or skills that could bring in contract revenue? Be *brutally honest* about your capacity. Overcommitting hurts everyone eventually.
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Then, as a studio, map out the bigger picture:
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* What money exists or is (definitely) on the way?
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* What are your expenses?
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* What's your runway? (How many months can you operate before you're at zero?)
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This can be a tough conversation. Disclosing financial precarity is a very vulnerable thing to do. But studios that have this conversation early – even imperfectly or uncomfortably – build a foundation of trust that supports them through much harder decisions later.
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(If you're in the Cooperative Foundations program, this connects directly to "The Talk" and the open-book practices in Session 6. The [Budget Builder at coop.love](https://coop.love/) walks you through the mechanics.)
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## Starting from zero
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We're going to briefly walk through five compensation models. Don't just pick one and think you're set. Most studios will shift through them as finances, team composition, or other circumstances change.
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These aren't the only possible configurations. Your studio might invent something entirely different – in which case you should tell us about it!
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The main thing is to *choose together* and write it down.
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### Equal pay
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With equal pay, everyone gets the same share of everything that comes in. So if there are three of you and you get paid for a $3,000 contract, you each get $1,000. It's simple, transparent, and nobody has to justify their worth relative to anyone else.
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This works well early on when everyone is putting in roughly the same effort and the amounts are small. But contributions generally don't stay equal for long, and it's hard to predict how they might change. For example, one person might end up doing more admin, or someone might get a day job and have only evenings to work with the studio.
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When the gap between what people are putting in and what they're getting out gets wide enough, equal pay starts feeling unfair to everyone. If you start here, agree in advance on when you'll check in about whether it's still working.
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### Hours-based
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Hours-based compensation pays everyone the same hourly rate, but proportional to the number of hours they actually work. Someone putting in 30 hours a month gets three times what someone putting in 10 hours does. It naturally accommodates members with day jobs, caregiving responsibilities, disability flares, or otherwise unpredictable capacity.
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But there's a snag – hours can become a proxy for value. Ten hours of experienced art direction aren't \[back and forth if isn't would work here\] less valuable than thirty hours of playtesting, but an hours-based model treats them that way. If your team is made up of a mix of both very experienced and new developers, or those with lots of free time and those with little, this can create a subtle hierarchy that conflicts with the cooperative structure you're building. It also requires honest, consistent time tracking, which some people find stressful or surveillance-like.
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### Needs-based
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With needs-based compensation, each member's share is weighted by their actual financial situation. So, someone whose rent depends on studio income takes a larger portion, and someone with a partner's salary or family support takes less. The principle at play is *equity*. It means everyone gets what they need to keep going, not everyone gets the same number.
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This requires real vulnerability and trust. Members need to feel comfortable sharing enough about their financial lives for the group to make informed decisions. But people – particularly marginalized people – often minimize their own needs. People who've internalized the idea that their needs are too much, or who don't want to be seen as a burden, may not report their needs accurately. A needs-based model only works if you actively check in on this.
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### Deferred / sweat equity
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Putting off everyone's pay is an option. With deferred compensation, every member tracks their hours at an agreed rate, and the co-op records what it owes. When revenue arrives, the accumulated debt gets paid down according to an order you've already agreed on.
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This is most pre-revenue studios, frankly. It can go very poorly, or you can make an explicit plan and document carefully. What to discuss: What rate are hours tracked at? Is there a cap on deferred hours per month/quarter? What's the repayment order when money arrives? What happens to someone's balance if they leave? Make space for everyone's concerns and questions.
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It's a bit dangerous no matter how you slice it. Deferred compensation is a promise, and promises without timelines can break down trust within your team. There is no clear moment when the promise has been broken.
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If revenue never materializes, people sitting on large deferred balances will feel (reasonably!) that they've been taken advantage of. One mitigation is to define a sunset period: If the balance isn't repaid within a certain number of months, the obligation expires. This gives the team member an off-ramp if they're not comfortable continuing work without a clear idea of when they'll get paid. It's a painful conversation to have up front, but a much worse one to have after *years* of unpaid work.
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Another way to look at early creative labour is as investment rather than wages. The people putting in unpaid hours are taking on risk and earning a stake in something that might (or might not) pay off. In practice, this could look like a persistent share for early uncompensated contributors – like a music royalty, where the people who created something get a small percentage of its revenue years after the work is done.
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Be honest with yourselves about power dynamics if you choose this path. If one member can afford to defer indefinitely and another can't, the person who can't is subsidizing the person who can.
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### Hybrid
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Many – if not most – of the studios we work with end up with a hybrid model.
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For example: Grant money gets allocated needs-based, prioritizing members who depend on studio income; contract revenue splits proportional to hours worked on that contract; and game revenue follows a different formula that accounts for both early contributions and ongoing work.
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This is a complex system to manage and maintain. Hybrid models are the most realistic but also the hardest to track and keep fair. Arrangements creep and morph until nobody can remember the actual deal. If you go hybrid, *write down every component*. Any member should be able to look at the agreement and understand exactly what they'll receive under any revenue scenario.
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Pick whatever model is *good enough for now, safe enough to try* (a principle from [Sociocracy 3.0 consent decision-making](https://patterns.sociocracy30.org/consent-decision-making.html)), and set a date to revisit it.
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## When money starts arriving
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This is supposed to be the exciting part! But it's where it actually gets hard – when your provisional model meets reality.
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Think ahead about what to do when these things happen:
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#### A grant is successful (congratulations!)
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Grant budgets usually have some constraints on how the money is spent. You may have proposed a budget with specific amounts per role or per phase. Your compensation model has to work within those parameters, or you'll have a bad time when the final report is due.
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But how do you allocate whatever discretionary funds remain? If people have been deferring compensation, does this grant pay down that debt first, or fund the next phase of work? If you didn't write down your deferred compensation terms, there's going to be some tension.
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#### Someone needs to go full-time
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The person who goes full-time first carries risk the others don't. They may have given up income security and bet on the studio sustaining them. How is that recognized? You could treat it as a higher draw from the shared pool, or track it as the co-op taking on a debt to that person. Either way, write it down.
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#### Contract revenue starts flowing
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If a member does contract work that generates IP for the studio, make sure your agreement covers who owns what. In Canada, there's no automatic assumption that work done by a contractor belongs to the organization that paid for it.
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\nEvery one of these events is a reason to revisit your compensation agreement. And also, put a regular reminder in your shared calendar to ask: Is this still working? Is it still fair?
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## Write it down
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A bigger risk than picking the "wrong" model is not writing things down.
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You don't need a lawyer for this. You just need a shared, written record that every member has agreed to. A Google Doc everyone signs is better than a verbal understanding.
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:::info
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**How to sign a Google Doc**\nHave each member type their name and the date in a designated "signatures" section at the bottom of the doc. Combined with Google Docs' built-in version history (which records *who* made *what edit* and *when*), this creates a timestamped record of consent.
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\nIf you have a Workspace account, there is also an eSignature feature.
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:::
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\nYour agreement should cover:
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* the pay model and base rate (even if the rate is $0 right now, *write it down*)
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* how hours and contributions are tracked
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* deferred compensation terms if applicable (what's owed, to whom, repayment order, sunset period)
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* what triggers a review
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* what happens if someone leaves before revenue arrives
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* what happens if someone joins after the initial agreements
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## What else?
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More lessons from five cohorts of our program:
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#### "We'll figure it out when there's money" is a decision
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It's a decision to defer to whoever has the most power, comfort, or financial privilege when the money comes in. In our experience, studios that have the awkward conversations early – when it feels *absurd* to divide up nothing – have stronger trust and faster decision-making later when the stakes are real. Avoiding it could tear your studio apart.
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#### Different financial positions aren't a problem to solve
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One studio had a member who could defer salary indefinitely, another who needed every dollar from day one, and a third somewhere in between. They didn't pretend these differences didn't exist. They wrote three different arrangements under one agreement, transparent to everyone. Asymmetry is okay!
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#### Revenue diversification is a compensation strategy
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Studios that are able pay their members aren't sitting around waiting for their game to ship. They have contract work, grants, workshops, small game releases, and consulting on the go so that something is always flowing while the bigger project develops. Yep, this is more work, and not everyone wants to do business development. But a studio with three revenue streams and a $30,000 annual budget can pay people; a studio with one game and a dream cannot.
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## Where to go from here
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1. Our [Budget Builder at coop.love](https://coop.love/) supports 3 of these approaches, with more to come. Plug in your team's numbers and see what's actually possible.
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2. If you're in the Cooperative Foundations program, Session 6 (Equitable Economics) provides facilitated space for talking about financial need, capacity, and expectations.
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3. Our [Financial modelling](/doc/06990e9a-120e-4944-9899-f76ddbcbe92a) article covers investment readiness, financial statements, and capital-raising for studios ready to think beyond initial compensation.
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