News in Crypto Compensation

20 May 2021
Yahoo! Finance
Treasury calls for doubling IRS staff to target tax evasion, crypto transfers

“President Joe Biden’s new tax enforcement plan would add nearly 87,000 employees to the Internal Revenue Service, make banks report more information to the agency and require stricter cryptocurrency compliance, according to a new Treasury Department report released on Thursday.”

(CVG) Employers: Remember the nightmare of 409A; don’t jump into the crypto movement before understanding all of the tax and other regulatory implications.

08 May 2021
The Economist (subscription required)
Govcoins: The digital currencies that will transform finance

“The Bahamas has issued digital money. China has rolled out its e-yuan pilot to over 500,000 people. The EU wants a virtual euro by 2025, Britain has launched a task-force, and America, the world’s financial hegemony, is building a hypothetical e-dollar.”

03 May 2021
JDSupra.com
Cryptocurrency Clamor: Paying Employees in Bitcoin Has Reached the Mainstream

“This year, Twitter, the City of Miami, the City of Jackson TN, the Sacramento Kings, and others have announced their exploration of Bitcoin payroll.”

21 January 2021
CFO.com
Sequoia Holdings to Offer Cryptocurrency Payments to Employees

“The company said it was beginning a program that would allow employees to defer portions of their salaries into bitcoin, bitcoin cash, or Ethereum.

“Sequoia will partner with a third-party payroll processing firm to withhold taxes…

“On Tuesday, Janet Yellen, President Joe Biden’s nominee for Treasury Secretary said Congress should consider curtailing crypto currencies…citing ‘terrorist financing’ and money laundering…I think many are used…mainly for illicit financing.”

(CVG) Yes Janet, and for compensating software developers and engineers.


It all started with sports news, as trends often do.

Is this just a sports quirk, intended to generate publicity for sports teams and athletes?

No.

Quietly, a few companies already had started paying their employees in cryptocurrency. Not surprisingly, most of these are crypto companies. Dozens of companies are using crypto as a form of payment for services to employees, members of the Board of Directors, and consultants/advisers.

Companies Paying Employees in Crypto

  • Coinbase
  • Protocol Labs
  • Fairlay
  • Mastercoin Foundation
  • BitSharesAPIcoins
  • Dana Crwdfundig
  • SC5
  • QuadrigaCX Bitcoin Exchange
  • blockchain.info (proof)
  • BitShares (proof)
  • dana crowdfunding
  • Fairlay – Prediction market
  • Mastercoin Foundation (public ledger)
  • SC5 (blog post)
  • APIcoin
  • Bits of Gold
  • Exodus Wallet (Careers page)

Implementing CryptoComp

Is it just as easy as doing a “find-replace” in a plan document, replaces “shares” with “tokens” or simply issues tokens through regular payroll processes? No.

Regulatory Considerations

As you might expect, any rules that affect cash compensation and equity compensation, have implications for cryptocomp:

  • Federal and state taxation
  • Securities laws
  • Financial accounting
  • Employment law
  • Withholding and social taxes
  • Deferred compensation: Section 409A
  • ERISA

See “Resources” below more more on each of these

Practical Considerations

  • Volatility – for decades companies have grappled with equity market volatility in delivering equity compensation to service provides. First with stock options, then restricted stock units (RSUs), and then performance-vested share grants. If you have invested in, or even observed, crypto markets you see it is equity market volatility on steroids.
  • Competitive analysis – we all know that the more volatility of a stock price, the more valuable that is to the optionee, right? (No, despite what Black-Scholes might tell you.) So, what is the value of a token paid outright, or a restricted token unit?
    • Is an RTU at face value equal to an RTU at face value?
    • When is the price set? With shares it’s the closing price on the day of grant (with some variations on that idea.) Crypto markets don’t close.
    • How do you deal with fractional tokens? Most stock plans don’t accommodate fractional shares. How do you pay a $5,000 bonus or $20,000 TRU grant? As this is posted, one Bitcoin is worth $37,214. It was $41,680 when I woke up this morning (See “Volatility” above.) But if you’re granting OEM, it’s trading at $0.00284314 (yes, get used to 8 decimal places).
    • Now, using competitive market data. This means that one Bitcoin is worth a little more than 13 million OMI.

Resources

Using Cryptocurrency as Compensation in the U.S. and Globally, Corporate Taxation Journal, Thomson Reuters, March/April 2020

 

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