The Board hire the CEO. They like them. They want them to succeed. They want to validate their hiring process. When it’s time to decide how much to pay the CEO they get in some consultants and they say the average salary for someone in this industry and this size company is X.
But the Board hired this person, they think they hired correctly so clearly the CEO is better than average. So the Board thinks they should pay them average plus 30%.
Now the average salary keeps going up because no board is wanting to pay their CEO average, or less than average when they have to sit at the board room table with them.
Let them eat Cake
There is a delicious cake at the next board meeting (I love a chocolate cake if you ever want to make me one, banana also goes down a treat). The Chairperson wants some of this mouth-watering cake and the CEO want some too. What do they do?
This is called the Fair Cake Cutting Problem, it is a way to approach dividing a resource evenly among people. It is pretty simple. One person cuts and the other person chooses.
This has been known for years, it even appears in the book of Genesis, Abraham said to Lot – “I cut, you choose”.
So what do over-paid CEO’s, Boards, and the bible have to teach us about better decision-making? You have to separate the Decision Makers from the Decision Evaluators.
Making Good Decisions
The person deciding how the process should go, first, needs to understand the goal and desired outcomes. They then can create a process to achieve them.
They shouldn’t be the person to evaluate the outcome of the process.
This is as if the person that cuts the cake gets to choose which slice they want. They will always cut it unevenly and then choose the biggest slice for themselves.
The person deciding the quality of the outcome should be different from the person deciding the process.
If someone else cuts the cake, then you get to decide which slice to take. This way the person cutting the cake is going to try to cut it as evenly as they can because they don’t want to create a chance to lose the cake.
Skin in the Game
In the cake example, both people want cake and both people want a good outcome.
This is true for the process. The person evaluating the process needs to want the outcome to work for everyone also. If the evaluator has ill intent then there is not much the decision-maker can do.
Cut the Cake
Be clear on what outcome you want. Make sure the person making the process is different from the person evaluating the process. This is where the interesting challenges come up and you can let the ideas fight.
Luke McMeeken-Ruscoe 