Value Creation Machine

A framework for understanding how businesses should view employee compensation as a value creation machine, where salary is an input that must generate proportional output.

The Business as a Value Creation Machine

• Business operates like a machine where:
  • Humans/effort are inputs
  • Money/salary is the cost of input
  • Revenue/value created is the output
• Current salary should at minimum "break even" on value created
• Additional salary requires proportionally greater output

Evaluating Raise Requests

• Key question: Will increased input (salary) generate more output?
• Assessment criteria:
  • Current input-output ratio (breaking even or profitable?)
  • Potential for increased value creation
  • Impact on overall machine efficiency

Constructive Responses to Raise Denials

• If denied, employees should:
  • Ask what would justify double current salary
  • Identify where value is created in the business
  • Focus efforts on "oiling" high-value areas
  • Create disproportionate value to justify higher compensation

Strategic Approach for Employees

• Have direct conversations about value creation
• Understand where the business needs improvement
• Target efforts toward highest-impact activities
• Demonstrate clear connection between contribution and business results
• Create measurable value before requesting higher compensation

The framework emphasizes that compensation increases must be tied to proportional or greater value creation for the business to maintain efficiency and profitability.