Thank you for your questions @zaatar. Answers below.
Thanks, this question made us realize clauses 4.42 and 4.43 could use some further clarity. We’re changing them as follows in service of that clarification:
4.42 Financial transparency reports should be published quarterly by way of DAO Notice within the first 4 weeks following the end of the previous quarter. These should include management accounts showing actual spending vs the budget, an updated balance sheet, and cash flow forecast.
4.43 Annual budgets should be published by way of DAO Notice at least 4 weeks prior to the start of the calendar year that they relate. The budget should include total director remuneration as determined by 4.37, total contractor remuneration, and any other material expenses categorized as the directors reasonably see fit. The budget shall be automatically approved unless there is a Supermajority DAO Resolution rejecting the budget, subject to the vote starting within 2 weeks immediately following the date of the DAO Notice. If the budget is rejected, the directors must amend the budget using their own reasonable judgment, subject to any limitation imposed on them by existing contracts or obligations, but shall not be compelled to go through any further rounds of approval.
These tweaks achieve the following:
Clarifies that the quarterly reports will compare actual spending in the previous quarter to the budgeted spend for the previous quarter.
Unbundles the annual budget approval from the quarterly report and ensures that the annual budget should be published at least 4 weeks prior to the start of the year to enable the DAO to reject the budget before budgeted spending starts.
Note that for the first annual budget and quarterly transparency report, due to the timing of this proposal, we should not be bound by the same timing requirements defined above. We will aim for the annual budget and transparency report to be published ASAP if/once this proposal passes and we are appointed to the Foundation.
As a general principle our stance is that compensation data should be aggregated, not individualized.
The DAO is not in a position to understand the individual role that each director or contractor is playing to the degree that the directors understand it. Therefore, we do not want the DAO to be tempted to evaluate individual Foundation employee’s performance, which is likely to happen if we’re highlighting how much each employee is earning on a granular level. Managing the performance of employees is the job of the directors to deliver an overall ROI and the DAO can evaluate how well the directors do this based on overall ROI. Aggregate, not individualized, figures are all the DAO needs to do this.
P.S. Given the small size of the Foundation, it won’t be hard for you to calculate an average salary for the directors/contractors if you wish.
The transparency reports and annual budgets will report Total Restricted Token Grants, highlighting how much POKT is allocated to vesting agreements, and the corresponding amount that were or will be unlocked in the quarter/year. These would be totals for the same reasons above re aggregate vs individualized reporting. All grants will be subject to a minimum of 3 years vesting.
Noted and applied to the new clauses above, thanks.
Extra governance security.
You and Adam both made valid points about governance security and implied that the threshold to make changes is generally too low. Increasing the approval threshold in addition to the quorum further addresses your concerns.
Of course. We have not indicated that these communication channels would be designed only so that directors may “allay concerns”. In fact, “feedback loop” implies that we would indeed incorporate community feedback into our work without being forced to. This has always been a fundamental part of the vision, if you revisit the Operating Philosophy in the proposal. This is the reason our original stance on controls was that the ability to remove the directors negates the need for additional controls, since it incentivizes maintaining the feedback loop.
These clauses restrict - not expand - the powers of the PNF directors and are taken from some boilerplate commercial “protective provisions”. They are designed to make explicit that anything unusual will not happen without DAO notice and consent. In the absence of such restrictive clauses, as a Cayman foundation, PNF is free to do pretty much anything it wants apart from issuing dividends. Therefore, contrary to “slipping them in”, we included these in the proposed amendments to reinforce the financial controls of the Foundation.
As I said, we would explore this with the Cayman lawyers that the Foundation already has. We do not need to seek local counsel and we should not delay the proposal for this.
I believe the budget approval mechanism in combination with the ability to remove directors addresses your concerns about director compensation. However, to address some of your comments on compensation:
Directors should be compensated relative to the market rate for similar roles, not relative to the average Pocket DAO contribution. We are talking about unique (generally full-time) work with genuine legal (civil and criminal) risk attached.
The market rates for such roles can be benchmarked by looking at similar foundations in the industry, taking into account the volume of work being performed by our directors, who will be significantly more active in these next few years than the average director in other foundations.
It has always been our plan to use a standard vesting schedule of at least 3 years.
We haven’t finalized the planned grant amounts yet as we plan to re-evaluate this in the new year if this proposal passes. However, I can tell you they’ll look very fair (on the low-end even) for 3-4 years of work relative to the average approved PEP this year.
All that said, the specifics of chosen compensation levels and token grants can be debated when the budget itself is published. The focus where this proposal is concerned should be on whether the governance structure is sound - i.e. provides the DAO with checks on the directors without impeding the Foundation’s ability to operate as an active steward.
We all agree on the need to separate PNF from PNI and install new directors - and the sooner the better. There is no indication that the appointment of Nelson, Jack and Dermot will be opposed.
We all agree that the directors need to be given a wide berth so that under their direction, the Foundation can steward the Pocket Network.
The authors of this proposal insist that this is the focus of PIP-26. I will support this proposal - but only if it sticks to this focus.
What I oppose is tacking on powers and clauses to this PIP that are unnecessary to these goals, questionable, and harmful to the relationship of trust that must be built between the DAO and the Foundation.
Outside the Consensus
Outstanding concerns in regard to the following issues fall outside the consensus:
directors’ fiat compensation
token grants to directors
DAO oversight of Foundation spending
directors’ terms of office
In addition, this proposal needs to include an amendment to the Foundation Articles of Association in regard to voting recusal.
I address these matters below.
Directors’ Fiat Compensation and Token Grants
Concealment of Individual Directors’ Salaries
Aggregating directors’ salaries restricts oversight and will only serve to undermine the relationship of trust that must exist between the DAO and the Foundation. The same applies to non-disclosure of the individual token grants that directors could award themselves (discussed further below).
This demeans the DAO. If it needs explanations, it can ask.
I am talking about directors - not employees or contractors. (We rely on the directors to monitor them.) Our job as the DAO is to review individual directors’ performance. Otherwise, how would we know whether to vote a director off the Foundation, or, re-elect him if elections are implemented (as urged below)?
Individual directors’ salaries must be disclosed.
Other points of contention:
the removal of any salary cap at a time when the directors set their own salaries without any real oversight (IE, DAO does not have final say on budgeted salaries and is kept from knowing the individual directors’ salaries) (more on DAO budget oversight below)
the directors’ unfettered ability to award themselves POKT token grants (along with non-disclosure of the individual amounts awarded)
The decisions on these matters - salary cap removal and director token grants - should be deferred pending further debate. Leaving these clauses out will in no way undermine or thwart the purpose of this proposal.
Interim Salary Cap of $250,000
In the interim, instead of “the sky’s the limit,” the salary cap of $50K can be replaced with a generous $250K cap per director. This can be raised later following debate - and based, among other things, on market conditions and Pocket Network’s success.
A few comments on the “justifications” offered for director salaries potentially greater than $250K:
Jack: “We are talking about unique (generally full-time) work with genuine legal (civil and criminal) risk attached.”
With all respect, to say there is “genuine” risk is misleading. Criminal risk exists only if you act with criminal intent. Civil risk is negligible if you act reasonably and observe your legal obligations. The proposed Foundation supervisor, Campbell Law, will be keeping an eye out and can advise the Directors as needed to avoid any civil (or criminal) liability.(Also Jack has indicated that the Directors may set up their own corporations through which they’ll perform their Foundation roles, which will shield them from personal liability.)
Jack says: “The market rates for such roles can be benchmarked by looking at similar Foundations in the industry, taking into account the volume of work being performed by our directors, who will be significantly more active in these next few years than the average director in other Foundations.”
I have no issue with comparing pay across the industry, but let’s not base salaries on predictions about activity levels over the next two years. Let’s assess directors’ performance one quarter (3 months) - or a year - at a time.
Token Grants (Directors)
I have commented on Directors’ risk above. In any event, a salary upwards of $250K (the ceiling I suggest above) should more than compensate directors for “extra responsibility” and “risk.” Equally a salary that can top out at $250K is plenty of incentive “for POKT veterans to volunteer for the role.”
However, to be clear, I do not rule out token grants for directors. My position is that this needs further DAO consideration before it goes to a vote - and therefore should be removed from the current proposal.
I do, however, oppose disclosure only of aggregate token grants to directors. Full disclosure of the benefits that the Directors give themselves should be the norm.
DAO Oversight Over Foundation Spending
While this is a big step in the right direction, it’s still inadequate.
The proposal should be amended to give the DAO effective oversight; lack of such oversight will erode the trust between the DAO and the Foundation. In addition, as I suggested in an earlier post, the proposal should be tweaked to minimize interference with Foundation discretion while at the same time reducing the need for DAO budget votes.
Narrow the Focus of DAO Budget Votes
DAO votes suck up a lot of time and energy. Let’s try and avoid them by creating mechanisms that build and nurture consensus.
If agreement cannot be reached on a disputed part of the budget, why put the entire budget to a vote? Every effort should be made to tailor DAO rejection resolutions to the parts of the budget that are disputed. The rest of the budget can go forward. To freeze the whole budget in its tracks unduly restricts the work of the Foundation. To cite Jack: “we should not risk stalling the directors from entering into important contracts” [that may be undisputed].
DAO Must Have Final Say
Under this proposal as amended, the DAO can vote to reject a budget, but the directors can effectively ignore this vote. The clause says they “must amend the budget,” but besides using “reasonable judgment,” no criteria govern the budget amendment and ensure that it will satisfy the detractors.
“Trust us,” say the directors. This violates the fundamental principle that for DAO oversight to be effective it must be exercised before-the-fact. Checks (and balances) need to be baked into the system we construct so that we do not have to rely on “trust.”
(I note that at the Town Hall of November 23, 2022, Jack made it clear that “we don’t want to be an ecosystem where leadership in the ecosystem is saying ‘just trust us’.”)
Accordingly, the DAO must have the final say on budget amendments. Yes, a vote (simple majority). (“simple majority” added after initial publication of this post)
This will cause little to no disruption of the Foundation’s operations if votes on budget rejection, and follow-up votes on the budget amendments made by the directors, are strictly limited to those parts of the budget that are actually in dispute.
Jack acknowledges that during the two weeks following publication of the DAO notice, the Directors can be persuaded to make amendments without the need for a DAO vote.
Giving the DAO the final say in budget disputes would encourage the directors to be more attentive to DAO concerns voiced in the two weeks after issuance of the DAO notice and to be more forthcoming in addressing those concerns. Conversely, giving the directors the last word on the budget will discourage compromise where it may be appropriate. Where the DAO gets the final decision, budget disputes will be more likely to resolve and rejection resolutions will be fewer. (Edited on December 22, 2022, for clarity.)
Simple majority should suffice
To force a change to the budget, a simple majority should suffice – not a supermajority. No justification has been given for a special majority to amend the budget.
Furthermore, a simple majority is more democratic and fairer: Under the proposed definition of a supermajority, a vote to reject the budget could be thwarted by the three directors’ votes alone. Using Jack’s figures, 14 people would have to vote to satisfy the current quorum requirement (25% of the total number of individual voters over the past 12 months). If the threshold is 75%, 11 voters would have to approve, which means that it would take only three voters to defeat the resolution. Even if more than 14 voters turn out, the number of votes the Directors would have to “whip” would be minimal to defeat opposition.
Recusal
Directors must recuse themselves from votes where there is a conflict of interest.
Further, PNF officers should recuse themselves from any votes with regard to matters where there is a reasonable apprehension of bias. That this is necessary should be self-evident.
Here’s an example: a director should be precluded from voting on whether to approve his or her own remuneration (aggregate or otherwise). Other PNF officers and/or employees – not just directors - should not be able to vote on such a matter either due to a reasonable apprehension of bias. Since officers/employees are hired or appointed by directors, presumably also can be fired by them, and are subject to their authority, there is a realistic concern that officers/employees will feel obliged to toe the line.
An Article of Association on voting recusal should be added to this PIP.
Would-be Directors Should Recuse Themselves on PIP-26 Vote
This same principle requires that the proposed directors and other officers be barred from voting on PIP-26 as currently formulated since it includes sections that remove any salary cap, and allow directors to award themselves token grants, and conceal their individual salaries and token grants. If these sections are scrapped or removed for later consideration, the conflict of interest would be eliminated and recusal would be unnecessary.
Fixed Terms/Renewals
This has an easy solution. In the unlikely event that there’s no quorum, if technically feasible, the length of the vote can be extended, a week at a time, till a quorum emerges. Or a new vote could be launched 1-3 months later. In the interim, the directors would continue to sit.
Elections Nurture Trust
Limited terms of office are the rule in democracies for a reason. Fixed terms promote accountability and transparency.
Practically speaking, voters are busy going about their lives and will not initiate a vote to remove directors save for misconduct, which, of course, can go undetected. On the other hand, if a director knows that (s)he will have to face re-election, (s)he will work extra hard and is far less likely to fall into complacency. It’s good for transparency because Directors will strive to communicate their successes and good work to the DAO to help ensure their re-election.
The lack of transparency of the incumbent (original) Directors shows that the threat of removal is not enough to compel transparency (though other factors may also have been at play).
What’s more, elections are good for the Pocket ecosystem. If community members know they have to vote every four years (could be a different number), they are more likely to stay abreast of the Foundation’s work and its contribution to the network - rather than just keep an eye out for misconduct. This will make DAO members’ votes on DAO issues more informed and enrich our DAO democracy. (“vote every four years” added after initial publication of this post)
Also, regular elections will nurture trust between the DAO and the Foundation. Elections affirm the DAO’s confidence in the directors of their choosing - or reaffirm that confidence when incumbents are re-elected.
Conclusion
Support appears unanimous for the speedy separation of PNI and PNF and the appointment of the proposed new directors. That the new directors should have the tools, flexibility and discretion they need to do their jobs also seems unquestioned. However, that support should not be leveraged to give the directors unnecessary powers or to secure passage of non-essential and undesirable parts of this PIP that are detrimental to the relationship of trust between the Foundation and the DAO.
Let’s limit this PIP to what’s needed to achieve its stated purpose. The controversial elements should be left for later and full debate.
Zaatar is a small node-runner and DAO voter.
(Any edits to this post, post publication, were made solely to fix typos or for clarity unless otherwise indicated.)
Firstly- I appreciate the time both DAO members and future PNF members have put into this debate, it’s been lengthy and granular and shows the wider community that proposals are challenged and debated at length before voting/implementation.
Separation of Core and Appendix issues:
This is probably a good idea, as long as the Appendix issues @zaatar highlights are voted in quick succession to PIP-26. If the Appendix issues can’t be voted through in one go, we may have to break them down into ever granular proposals until they have all passed.
Costs & Remunerations.
If the current bylaws suggest an upper limit of $300k for salary, I think this is acceptable. I do believe there should be an upper limit however.
Costs for grants/buying goods and services should perhaps be on a sliding scale of approval needed.
I’m heavily in favour of the DAO not micro-managing spending by the PNF. However, unilateral spending should prevented: example, if the PNF or a PNF Director decided to spend $10,000 on a pencil, and do this multiple times before being voted out, how do we regulate this? Some kind of sliding scale of approvals needed for an individual purchase above $10k, $100k and total spending per quarter beyond X.
This could be needing to publish buying over Y amount, such that the DAO can call a vote if it’s thought unreasonable (onus on the DAO to ‘negate’ the spending), or that we would need a DAO vote on spending outside salaries over $100k, a super-majority agreement for spending over $300k. All examples, numbers can be adjusted as needed.
Budget
DAO should be given a forward looking budget, and if spending goes above the budget by ~30%, extra approval is required. There should be a budget review at the end of the year, breaking down major spending to better inform the DAO and provide insight for future budget request.
Elections
I am against holding elections for positions. My feel is that if a director is doing a competent job, they should be allowed to continue ad infinitum. If they are doing a poor job, the DAO can vote them out. There is an opportunity cost of time spent on elections which I do not think is justified given the safe guards in place.
I think that it should not be hard to reach some agreement around the points raised by @zaatar .
Limiting Salaries
If the cap is high enough (250k or 300k) it should not interfere with the current proposal. If the market or the success of Pocket requires a higher cap, we can go to a DAO vote.
Token Grants
I think that grants for directors, which will be self-assigned, should be disclosed. The DAO must be able to know this to effectivelly supervise the directors. Other grants, to lower ranks in the PNF can be informed as total sum, since the PNF directors supervise those.
Also, I think that is important to include the POKT spending (including grants allocation) in the budget proposals. I’m not sure if this is already included.
DAO spending / budget
I think that a rejected budget cannot be unilaterally amended by PNF at discretion and then use it. The budget is the only tool that the DAO has to prevent (too some extent) misspending before the fact. I think that the partial voting that @zaatar proposes is not crippling.
Recusal
This is a logical think to ask for and should not affect the PNF.
Fixed Terms
I do not have a strong opinion here. I tend to incline for a fixed terms with default re-elections. It will take time from the PNF directors but it will also give a chance for others to compete. It will be really difficult to remove a director thats doing a mediocre job in favor of a director with unknown performance. Without fixed terms it would need a very poor performance from current directors to be able to remove them.
Conclusion
I think that the changes that are being suggested do not go against the spirit of this PIP and can (should) be addressed before the vote.
While I can’t speak on behalf of the group without talking to them first, I think you will be pleased to know that our positions are not wildly different from yours. I think we are all aligned with wanting to create a sustainable Foundation that is well-placed to enable the DAO to be its best self.
We will discuss your response as a group and get back to you with a comprehensive response and suggested next steps. Before we do so, here is my immediate take on a few points you brought up:
Ultimately, the risk in question is not directly quantifiable. However, what is undoubtedly true is that any director of PNF puts themself under much greater scrutiny and legal risk than a typical contributor to the DAO. And using a corporation does not protect against the costs - both in terms of time and money - that can arise from claims from regulatory authorities or even spurious or bad faith claims from third parties against PNF and the directors themselves.
I’m fully aligned with protecting against conflicts of interest within PNF and the wider Pocket community. Directors are already subject to conflicts of interest rules per the Cayman Islands laws. And PNF’s Article 12 itself deals with conflicts of interest, stating:
a director may not have a direct or indirect interest or duty which conflicts or may possibly conflict with the interests of the Company
And the subsequent provisions of Article 12 deal with the procedures around such.
Additionally, Article 12.7:
A director may vote at a meeting of directors on any resolution concerning a matter in which that director has an interest or duty, whether directly or indirectly, so long as that director discloses any material interest pursuant to these Articles. The director shall be counted towards a quorum of those present at the meeting. If the director votes on the resolution, his vote shall be counted.
And 12.8:
Where proposals are under consideration concerning the appointment of two or more directors to offices or employment with the Company or any body corporate in which the Company is interested, the proposals may be divided and considered in relation to each director separately and each of the directors concerned shall be entitled to vote and be counted in the quorum in respect of each resolution except that concerning his or her own appointment.
So while I agree with you, I don’t believe that the Articles are the proper place to document this “recusal” provision, given that the articles relate to the powers of the Foundation. I believe the proper place to document such a provision would be in the Constitution, as that relates to the powers of the DAO. Further, I believe such a provision should be expanded to require the recusal of any voter where they stand to benefit from a vote passing.
As @JackALaing previously mentioned, it is beyond the scope of this proposal to amend the Constitution. I will discuss this with the rest of the team and get back to you on this point, but it would be my recommendation to wrap up this proposed amendment into the rest of the updates to the constitution. And in the meantime, any voter with a potential “interest” in this proposal - ie Nelson, Jack and I - should agree to publicly recuse themselves from this vote, which is what I had always planned to do in any case. And you can verify, not trust in this regard, as it is possible to check wallet addresses against the list of voters.
As an FYI, we also have an item on our immediate internal roadmap to implement transparency and conflicts of interest practices and policies into our daily operating culture, which will trigger notifications and disclosures beyond those legally required by the articles, ie in addition to those which affect board votes or DAO votes. This policy will be publicly released in due course.
While I agree with the general thrust of what you’re saying, four years is a huge amount of time. So the benefits of what you are suggesting are diluted somewhat. My personal internal recommendation to the rest of the prospective board was to take the first 12 months after our appointment to achieve everything we set out to do in the public roadmap and then put in place clearer mechanisms about director term limits and renewals, as well as the roadmap for onboarding new members to the board. I recommend spending more time deliberating about the mechanism(s) to achieve the goals you seek with this proposed amendment before committing anything to the legally binding statutes of the Foundation. Maybe one or two years may be more optimal. And there is much to consider about enabling prospective directors to put their names forward fairly. Let’s debate this in more detail. In short, I think this proposed amendment can be pushed to a later date. But we should publicly agree to a timeline to put such a mechanism in place, eg 9-12 months from the appointment date.
If PIP-26 passes, I can live with a timeline of up to, but no more than 12 months from the date of its passage (IE, the date that the new directors are appointed). Corresponding language should be added to this proposal.
Yes, PNF directors face greater risk than typical DAO contributors. But they do not face great risk - and certainly not great personal risk if they’re acting behind a corporate veil.
Good legal advice and diligent compliance will vastly minimize the likelihood of claims against the directors by regulatory authorities. Spurious/bad faith claims from 3rd parties cannot be predicted. As to costs in terms of time and money: you’d deal with any claims on the company clock as part of your job. As to money, the foundation should cover legal fees and expenses. Legislation in this regard should be enacted once/if this proposal passes. Directors would have to cover their own legal costs, or the foundation would have a right of recovery, only if they were grossly negligent or found to have committed a criminal offence.
Once new directors are installed and review the foundation’s Articles, I’d recommend considering an amendment to this article as it seems improper to allow a director with an interest in a matter to be able to participate in a vote on that same matter.
Thanks everyone for the feedback. Responses and suggested amendments below.
Individual Reporting of Director Salaries & Token Grants
While we will not budge on aggregating employee salaries, we concede that individual reporting of directors salaries will help the DAO with oversight in the long-run. The beginning of the relevant clause will be changed to the following (the remainder is being amended as described further down in this post):
4.43 Annual budgets should be published by way of DAO Notice at least 4 weeks prior to the start of the 12 month period that they relate. The budget should include director remuneration reported on a per-director basis, total contractor remuneration, and any other material expenses categorized as the directors reasonably see fit. …
We will also report POKT token grants on a per-director basis as part of this.
Director Remuneration Cap
We are happy to reintroduce the cap if it will reassure the DAO. However, it should be noted that the cap itself refers to total remuneration, not just salary, and therefore we are going with a $300k total remuneration cap.
Rather than remove 4.38 c) we will amend it to the following:
4.38 A director or officer shall only be remunerated for services rendered. Any agreement between the Company and a director or officer concerning the remuneration of such director or officer shall be null and void where such agreement:
…
c) agrees to remunerate the director or officer for an aggregate sum exceeding US$300,000 per annum (as of January 2023), adjusted annually for inflation by reference to the Consumer Price Index as measured by The Bureau of Labor Statistics, where such aggregate sum includes the annual vesting amount of any POKT token grant, and the value of the per annum vesting of such POKT grant will be determined by the prevailing market price as at the time of the grant and shall not exceed 50% of the director’s US$ salary.
As an example of how this would be applied in practice, if a director is being paid $250k per annum in salary, at a price of $0.1/POKT, this would allow them to receive a token grant of up to a maximum of 1.5M POKT vested over a 3 year period. For directors being paid smaller salaries, their token grant would be limited such that the value of their per-annum vesting cannot exceed 50% of their salary.
Constraints on Remunerating Directors in POKT
We reject the notion that directors should be refused any POKT as part of their remuneration. However, in addition to the cap above, we recognize the concerns about the possibility of directors including one-sided terms in their grants. While we have already indicated our plan to use standard terms of at least 3 years vesting, we understand that it would be better to have this standard be legally enforced. Therefore we have amended 4.38(a) to set a constraint on the permission to remunerate directors in POKT, by requiring that such grants should be subject to at least 3 years vesting:
4.38. A director or officer shall only be remunerated for services rendered. Any agreement between the Company and a director or officer concerning the remuneration of such director or officer shall be null and void where such agreement:
(a) entitles such director or officer to participate in any distribution, dividend or transfer of assets of the Company or awards or entitles such director or officer to any profits or any assets of the Company, except where the transfer or entitlement of assets is in the form of a POKT token grant subject to at least 3 years vesting; or
As for concerns about the quantity of POKT granted, this is constrained by the Director Remuneration Cap above and will also be disputable by the budget amendment process below.
Budget Amendment Process
We will amend the relevant clause as follows:
Edited 12/28/22 and 12/29/22 to incorporate feedback
4.43 Annual budgets should be published by way of DAO Notice at least 4 weeks prior to the start of the 12 month period to which they relate. The budget should include director remuneration reported on a per-director basis, total contractor remuneration, and any other material expenses categorized as the directors reasonably see fit. The budget shall be automatically approved in full unless there is a DAO Resolution contesting any line item, subject to the vote starting within 2 weeks immediately following the date of the DAO Notice, the vote lasting no fewer than 14 days and no more than 15 days, with a quorum of at least 25% of DAO participants who have cast a vote within the 12 months immediately prior to the date that voting commences on such DAO Resolution. DAO Resolutions may only contest existing line items (not propose new line items), may only contest 1 line item each, may only reduce (not increase) the value of a line item, and shall not call for the transfer of resources from one line item to another. In the event that any line item is contested, the remainder of the budget shall proceed. The directors must amend any successfully contested line item(s) by way of DAO Resolution (no quorum required), subject to any limitation imposed on them by existing contracts or obligations. If a line-item amendment is rejected by the DAO, votes on further amendments to the same line-item shall continue until DAO approval or until the directors abandon the line-item.
To enable us to introduce a quorum to the DAO Resolution, we need to amend the definition of the DAO Resolution as follows:
DAO Resolution shall mean a resolution validly passed on the DAO in accordance with the governance protocols of the DAO with at least 50% approval by DAO participants who voted on the resolution. There will be no quorum requirement unless otherwise specified in these Articles.
Changes:
Changed supermajority to a majority but retained the quorum requirement (which was the reason we used the Supermajority DAO Resolution for this in the first place).
Set constraints on budget rejection proposals to be limited to 1 line item each and only reducing existing line item values, not creating new line items, increasing line item values, or attempting to transfer value between line items. It is the DAO’s job to check overspending by directors, not to micromanage strategy.
Specified that a line item amendment by the directors needs to be approved by a 50% majority but does not need a quorum. Using a quorum for the amendment(s) risks deadlock on the contested item(s).
Since there is a possibility of the DAO rejecting line item amendments multiple times, specified that the directors can go through as many cycles as is necessary to get the line item to a level that satisfies the DAO.
Retained the caveat that the directors will not be expected to abide by the DAO’s dispute if there are pre-existing contracts/obligations, e.g. the current contract with Copper for integration of their custody platform.
Special Transaction Rejection Process
The special transactions clause wasn’t mentioned in any feedback but this should also be a simple 50% majority if we are following the same reasoning as the budget rejection process above. Therefore:
4.44 Subject to any limitation imposed on the directors by any confidentiality agreement, financial regulation, or related laws, the following special transactions shall be published by way of DAO Notice no fewer than 4 weeks prior to the transaction date and shall be automatically approved unless there is a DAO Resolution rejecting them, subject to the vote starting within 2 weeks immediately following the date of the DAO Notice, the vote lasting no fewer than 14 days, and a quorum of at least 25% of DAO participants who have cast a vote within the 12 months immediately prior to the date that voting commences on such DAO Resolution:
…
Voting Recusals
@Dermot has advised that recusals in the Articles would not be binding on the directors, since the Articles bind the directors only where the proper running of the Foundation is concerned, not activities outside of the Foundation.
If we want recusals like this, this standard should apply equally to all DAO stakeholders. For example, @zaatar would be forbidden from voting on changes to GRIP’s compensation. This is worth exploring for future amendments to the Constitution but are outside the scope of this proposal.
A Process for Director Appointments/Renewals
We will add to our roadmap in the proposal that, by Q4 2023, we will design and propose a process for the nomination/consideration of new/existing directors. This is not a commitment to a specific model but a commitment to evaluate all of the mechanisms available to the DAO and work with the DAO to choose the one that makes the most sense for Pocket.
Inflation Adjustments
While working through amendments to the remuneration cap clause, we realized that the cap would become outdated due to inflation, and subsequently added an inflation adjustment to the clause. This same inflation adjustment should be added to every similar clause where a US$ value is referenced:
“(as of January 2023), adjusted annually for inflation by reference to the Consumer Price Index as measured by The Bureau of Labor Statistics,”
Does this mean that the vote will continue until a quorum is reached? If so, this needs to be stated. If not, when does the vote end?
DAO Resolutions – simple majority but with a quorum - will be needed per line item to force a change to that line item. Got it. However, a few edits would help make clear what happens next - as the current wording is confusing. Although less legalistic, here’s what I suggest:
“In the event that any line item is contested, the remainder of the budget shall proceed. The directors must amend any successfully contested line item(s), subject to any limitation imposed on them by existing contracts or obligations. The proposed amendment must be put to a new DAO vote (no quorum required). If a line-item amendment is rejected by the DAO, the directors may revise the amendment as many times as they deem necessary.”
Is there a time limitation on the new vote(s)? This needs to be added. EG, “A vote on a line-item amendment shall run for 14 days. If necessary, votes on further amendments to the same line-item shall continue until DAO approval or until the directors abandon the line-item.”
A few other edits (see italics) should be made:
“…at least 4 weeks prior to the start of the 12 month period to which they relate… 14 days, with a quorum of at least…and shall not call for the transfer of resources from one line item to another….”
Voting Recusals
An amendment to this effect is not just “worth exploring.” I agree with Dermot that such an amendment is a must-add to the Constitution.
I agree with Dermot and Jack that recusals should apply equally to any DAO stakeholder who may benefit from a vote passing. But I would go further. To avoid a reasonable apprehension of bias, I would extend mandatory recusal to cases where the voter is under the authority of the person who stands to reap the benefit (EG, foundation employees/officers who can be fired by directors should not vote on benefits that would accrue to directors).
If a future amendment to the Constitution is required, why discuss this now?
Pending a constitutional amendment, DAO voters whose participation in this vote - and future DAO votes - would violate the conflict of interest principle, should voluntarily recuse themselves.
Dermot has made his view clear that he, Jack and Nelson should all refrain from voting on this proposal. While Jack and Nelson have not commented, Dermot’s position reflects the high integrity and fairness that we expect of a would-be director.
This proposal, with its original clauses allowing limitless director remuneration with little DAO oversight, brought the conflict of interest issue into relief. Pending a constitutional amendment, I will recuse myself from voting on any proposal that invites personal compensation. I anticipate that other DAO members will do likewise.
(paragraph on recusal of PNF officers from budget votes deleted - Dec 28)
Director Term Limits/Renewals
For comity, the DAO should be involved in the process of designing the model that’s put to a vote. Accordingly, if PIP-26 passes, the proposal on Director Appointments/Renewals should be floated in the Pre-Proposal category of the Forum.
Based on the vote starting within 2 weeks following the DAO Notice and lasting at least 14 days, it was intended that the voting would be over no more than 4 weeks following the DAO Notice. To avoid DAO members abusing this, I will amend to say “the vote lasting no fewer than 14 days and no more than 15 days”.
Your suggestion excludes the term DAO Resolution which is key to defining that majority approval is required. DAO Resolution defaults to no quorum but I’ll include “(no quorum required)” for avoidance of doubt. I’ll amend as follows for clarity:
Edited 12/29/22.
“In the event that any line item is contested, the remainder of the budget shall proceed. The directors must amend any successfully contested line item(s) by way of DAO Resolution (no quorum required), subject to any limitation imposed on them by existing contracts or obligations. If a line-item amendment is rejected by the DAO, votes on further amendments to the same line-item shall continue until DAO approval or until the directors abandon the line-item.”
There is not. The directors are incentivized to not set an unusually long vote and are required by the Constitution to have the vote last at least 7 days. Not everything needs to be defined in these Articles.
Noted.
I said it is “worth exploring” simply because I’m skeptical about the enforceability of a recusal clause in practice. The viability of such a mechanism would be a large part of what we’d “explore”. Again, this is outside the scope of this proposal.
We have not commented because neither of us has a vote to recuse.
Of course. I’ll refer you to the comment you quoted where I state that we will “work with the DAO to choose the one that makes the most sense for Pocket.”
the proposal on Director Appointments/Renewals should be floated in the Pre-Proposal category of the Forum.
The Pre-proposal category is not wholly representative of the DAO. It is one of the channels that we would use.
For certainty, I assume that this is a more concise way of saying:
…and…
A Few Questions on Token Grants:
Should the minimum vesting schedule (at least three years) be written into the Articles as part of this proposal?
Will there be any limitation on how often the directors can issue a token grant to a specific individual?
What happens if a director leaves the foundation two years in and has yet to redeem 1/3 of his tokens (as I assume that the other 2/3 will have unlocked by the end of year two)?
Hi @zaatar chiming into the conversation here. In regards to the questions on token grants.
As a principal, I don’t think we should be using the articles as a day-to-day operational manual for the foundation including every possible edge case. The foundation directors will need to use their discretion to make operational decisions, and they have a fiduciary duty as directors of the foundation.
As we have said, we will use a minimum vesting schedule of at least 3 years for all director token grants and I don’t see the need to bind this in the articles.
I don’t see a need to impose strict limits on often directors can issue token grants to individuals. There will likely be situations where someone’s compensation is being reviewed, and additional token grants are appropriate. Keep in mind the compensation cap still applies.
If a director leaves the foundation after 24 months, then they would keep their 24-month vested allocation, and they would lose their 12-month unvested allocation.
Adding on some extra detail to what @nelson said, so you have my perspective too:
This provision is written into the articles as per:
As per the clause above, foundation directors do not have the power to grant themselves a POKT grant that has a vesting schedule of less than 3 years
There is a cap on director remuneration, as previously laid out by @JackALaing
And consent of the DAO is required for the various “special transactions”, which essentially are large transactions or transactions that would be considered outside of the ordinary course of business for the foundation
And there is transparency over all spending via the budgetary process combined with the quarterly transparency reports.
If you are referring to a cap - whether based on frequency or quantum - on certain entities or individuals - outside of directors - receiving grants from the foundation, I would be hesitant to add something like this without good data and reasoning to justify such a prescriptive measure. I refer to the thoughtful comments from @b3n in this regard:
Is there a particular risk you are interested in that isn’t appropriately covered by the above, or the fact that each director is subject to legal director duties to act in the best interests of the foundation and its mission?
A contract will be in place with every recipient of a POKT grant that will specify what @nelson said, ie you lose all of your future entitlement from the moment you resign or are fired
Following the debate in this thread, the authors of this proposal have introduced significant improvements. As now amended, I support this proposal.
Among the improvements:
DAO oversight over Foundation spending has been strengthened: the DAO now has the final say on the budget
caps, albeit generous, have been put in place for remuneration of Foundation directors/officers (salary and token grants not to exceed a combined total of $300K per annum)
to enhance transparency and accountability, individual directors’ remuneration will be disclosed
a commitment has been made to design by Q4 2023 a model for director renewals and election of new directors
supermajority definition has changed (75% of votes and turnout threshold added) to protect against minority governance attacks
(To help voters understand what the proposal now calls for, it would help to revise it so that it reflects the changes it has undergone since it was first posted.)
All discussed amendments have now been added to the proposal. The first post in this thread is now the source of truth on the changes that are being voted on. We do not plan to make any further amendments to the proposal before we put it to a vote on Jan 3rd.
So who will be the initial directors of the PNF after this proposal? I thought we were voting on setting up the foundation with the initial 3 directors + the supervisor. But now there is only Jack and Dermot mentioned in the proposal. Could you please clarify who are the 3 directors that we are voting to elect?
What is the difference between an executive director and a director? My guess is that as an executive director you will be doing what you have been doing so well the past years - leading the governance efforts, governance expertise, and the coordination of the PNF, DAO, and related governance efforts; in addition to leading the new agendas set in this proposal. But what exactly are the responsibilities of other directors?
Also, I see director positions are clearly demanding, especially since there is a generous (potential) package of $300k per annum. Also, I remember reading in the threads that directors are required to commit full-time to the efforts of the PNF (correct me if I am wrong here). Could you please clarify to the community where the candidates are with respect to this requirement?
I know we are time constrained. But since we are essentially selecting the 3 directors for 1 year with not much oversight on the budget for this one year, it would make sense to know the responsibilities of the directors and how committed they will be. This should help us as a community to judge their performance in the next review.
Nelson is already a director and has been since the formation of the Foundation. This proposal seeks to appoint myself and Dermot to join Nelson as directors, while removing Stephane, who was the other existing director alongside Nelson. This proposal also seeks to remove Michael O’Rourke as supervisor and appoint Campbell Law instead.
The main difference is that I’ll be working full-time on leading the Foundation’s day-to-day operations. Nelson & Dermot (and any other directors) would typically be part-time. The responsibilities of different directors will vary in service of the Foundation’s collective responsibilities, but there is a common thread for all directors of multi-sig signing, treasury management, and various administrative responsibilities, to name a few.
Directors are not required to work full-time. The commitment levels of the directors will be determined on a per-director basis when the annual budget is being finalized. We plan to break down the planned salaries in the budget corresponding with the different components of the director role. Note also that $300k is an upper limit for total remuneration including restricted (vesting) token grants, not a target salary. The actual remuneration of directors will be determined on a per-director basis and subject to the DAO’s approval in the annual budget process - including this quarter if/after this proposal passes. When the budget is being considered, you will be able to evaluate the directors responsibilities and commitment levels and judge whether their corresponding remuneration is fair.
For clarity, this is a 7-day vote that will be approved with a simple 50% majority and no quorum. The supermajority requirements for Foundation changes, outlined in this proposal, will not be active until (if) this proposal is approved.