You Get Paid Based on Value, Not Time

Face time, putting in hours, burning the midnight oil.  Do any of these matter when trying to achieve a top quartile paycheck?  To some extent, putting in face time, especially early in your career, is important.  But as you move up the food chain, your job becomes less and less about the hours spent and more and more about the results you achieve.  In order to be a top performer, you must do more than just show up.  Instead, you must start to find new and creative ways for your firm to add value for its customers.  Improving the bottom line will be what advances your career.  As you move higher on the corporate ladder, you get paid based on the value you create and not the time you spend in the office.

Payment for time jobs are generally found on the lower end of the scale, mostly in service related industries.  There are still manufacturing jobs where payment for time is the model, but those have been disappearing for years and will continue to do so.  Alternatively, how many high paying office jobs do you know that have an hourly wage? Payment for time jobs are not scalable and will keep you poor, not allow you to become wealthy.  Like manufacturing jobs, these are also at a huge risk of automation, robotics, and artificial intelligence.   These jobs have been, and will continue to be, low paying jobs and have been, and will continue to be, disappearing.

High paying jobs based on value creation, however, are rampant in today’s economy.  On a company level, many of the biggest companies in America no longer fit the mold of the old industrial corporation.  General Electric just cut its dividend for the second time in its history, while Facebook is reporting record profits.  Facebook provides the public a platform to communicate with each other, got in early on the social media wave, established a network effect, and now monetizes that with advertisers.  Remember that Facebook’s customers are the advertisers, not its users.  In Q3 2017, Facebook’s advertising revenue was $10.1 billion while all other revenue was $186 million.  All of this has netted Mark Zuckerberg a cool $75 billion.  The same is true of Amazon- while it’s the best logistics company in the US, it also serves as a true one-stop shop for its customers.  Its customers can get groceries and Christmas gifts, watch the NFL or stream TV shows and movies, or provide a little cloud computing to anyone who needs it.  Jeff Bezos is the richest person in the world, with $95 billion to his name.

Value creation will only become more important as the old, industrial jobs continue to disappear and new, creative types take their place.  Let’s make sure we’re on the right side of that transition.

Value Creation Today

In order to become a high-income earner, value creation must be considered both at the company where you work, as well as at the employee level.  At the company level, your customer perceives value as the benefit they receive, and it does not necessarily have to be fixed or tangible.  Firms must work hard to understand how customers value their product, and find ways to increase and improve upon that.

According to Seth Kahan, author of Getting Innovation Right, companies can do one of three things: create new value, create more value, or create better value.  Creating new value is the hardest, and involves inventing new products or finding ways to enter new markets.  Creating more value is relatively easy, as it involves making the current experience better for the customer, often by giving more for less.  Creating better value tweaks the current value proposition by changing the application or the influence of the product.

From an employee perspective, targeting firms that create new value or create better value is the best path forward.  Firms (or divisions within a larger company) that create new value can be risky, but with a high payoff.  This is equivalent to working at a start-up and trying to build something new from scratch.  Firms delivering better value can be some of the best companies to work for, as they’ve got a model that works and yet keep finding ways to improve it and maintain its relevancy.  These companies can be a nice down-the-middle place of employment that provides a great chance at success.  Firms or divisions creating more of the same value should be avoided, unless you have a path to the very top.  These companies are trying to do more with less, so cutting expenses and minimizing compensation for anyone but the upper echelon of management will be a priority.

As an employee, creating personal value is a little different and more nuanced than at the company level.  Compensation becomes more and more tied to your impact on revenue and profits as you progress in your career.  However, what causes that impact on revenue and profits is constantly changing, and you have to be ready to change with it.  First you must fully understand how your company adds value for its clients and makes money.  Then you must understand how your piece fits in with the rest of the company.  This is something many people struggle with, as we get bogged down in our own silos and only know what’s going on in our own division.

Having the most impact on your firm and adding the most value comes down to three things: processes, payment, and people.  First, focus on the things that you can control – the processes in and around you.  Find ways to make these more efficient, design new ones that are better, find ways to reduce costs, or do the same but with better risk management.  Second, focus on ways to improve revenue and profit (the payment).  There is always competition for both your current customers and new customers.  Maximize current customers first, and see if there are ways to expand revenue opportunities with them.  Then, you can innovate and design new products or enter new markets.  This part can be risky, but the payoff can be much higher.  Third, improve the team.  Process, payment, people – these are the keys to a good business.  As you progress in your career, getting the right people in the right place will be one of the most important activities you do.  Build the right culture, and make sure your team is firing on all cylinders.

Most employees just focus on one of these (or none, potentially) without seeing the bigger picture.  Although you must specialize in your career at some point, you must also become proficient in all of these.  If you are a program designer, understand how your program attracts customers, figure out how to improve the design process, and find ways to get your team to work together better.  The key is to identify those value creation processes that you have some control over, and find ways to improve them.  Anjan Thankor, a professor in finance at Washington University in St. Louis, came up with a great idea.  He suggested making a list of activities you get paid for and another list for activities that allow you to get promoted.  Become an expert in the first list first, all while working to become an expert in the second list.

Value Creation in the Future

The old industrial model is breaking down.  Putting in effort A to get result B and doing it more efficiently was the old way to earn a living.  Workers liked it because you learned what to do and got the results needed – it was, and still is, easy.  Firms liked it because it was predictable and they knew how to influence the outcome.  Economies of scale were important then, but are less so now.

Innovation and creativity are the new value creation models.  The ability to solve a tough problem or find a new and better way to distribute a new product is what earns the big bucks.   Much of future innovation will involve bringing basic research or engineering into the real world in a way that works better than the competition.  On a personal level, you have two paths forward.  One is to be the creator of the innovation, by working as something like a programmer, math or engineering whiz, or an amazing salesperson.  The second is to be the one controlling the innovation- the manager who works well with creative types and keeps them focused on the task at hand.  While the first sounds like it would be more highly compensated, in most cases, it’s actually the manager that gets paid far more.  As a manager, you’ll have a greater need for more entrepreneurial and broad-based skills.  Disruption is more common now than ever so adaptation will be that much more important.  The ability to change and adjust mid-flight will be crucial.  Managers can help influence this better than creative types.

Be a Value Creator

The future will be simultaneously just like the past and yet very, very different.  Remember that value creation is always changing, and it does so in cycles.  However, it was and always will be about filling a need for your client better than the other person.  You get paid based on the value you create, not the hours you put in at the office.  Find the organizations that create value for the customers well, and find a way to be impactful there.  This will continue to be the path to an upper income-earning life.

Keep building my friends.

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