Managing through compensation

I was visiting a friend this weekend. He was asking my advice on a matter related to his small company. The company has 10 employees and one of the employees -- for the purposes of this post, let's name the employee Dillon-- requested a meeting to discuss compensation. In a nutshell, Dillon wants more money and more ownership in the company. Significantly more. He's currently making 225K but wants to be making over 500K. He also wants a solid equity stake in the company. Dillon is 50+ years old. Dillon has been doing an adequate but not excellent job. My friend is afraid to lose Dillon because it would harm progress the company is making. Dillon senses this fear and is really putting an aggressive tone to the salary conversation. My friend is willing to consider giving Dillon a raise but wants his work commitment to increase.
Based upon what I heard, I think this work relationship is going to end within 6 months. Generally, I don't think you can buy work quality or commitment. In my experience, salary has very little to do with work ethic.