Center for Governance & Compensation

What is value creation? How can a corporate governance be established to assure a sustainable value creation? How can a company legitimize its long-term existence?

Different perspectives must be considered to promote the right governance framework for sustainable value-creation in the long run. By developing an “ownership strategy” which defines a common understanding of “success”, a company can promote the right behavior and foster its culture while also enabling an efficient capital management.

A successful value creation is based on three pillars: An aligned performance measurement approach, a properly designed compensation system and efficient steering processes. Within these boundaries, decisions on strategic planning, investments and financial operations as well as leadership can be made.

First, given a common understanding of success is established, it should be defined how a company measures performance. It is essential to not only focus on the level of performance but, more importantly, to determine the quality of performance to be measured. This process helps to understand where the company creates an added value not only for its shareholders, but also for its clients, employees and other stakeholders. When we know what success is and how we can measure the required performance to achieve it, it can be defined how success shall be compensated for and steered.

Secondly, within a value sharing guidance, i.e. how value is split among shareholders and other stakeholders, employees shall be compensated according to the performance of the company. By setting the right incentives, employees can be attracted, motivated and retained. While an accurate compensation system may promote performance and foster accountability, it remains a challenging leadership task to make employees understand their impact on value creation. Compensation and leadership both have a great influence on behavior and culture, which ultimately create the self-understanding of a company.

Thirdly, the definition of a framework for decision-making forms a well-founded steering within the company’s checks and balances. Typically, steering initiatives and ultimately, decisions in the corporate environment are based on quantitative and potentially qualitative performance indicators (or KPIs). The results of an individual initiative will also be reviewed in terms of the KPIs set. Backed by robust checks and balances, any operative and implementing actions are guided by those indicators and eventually intended to result in an efficient capital allocation.

Taken together, the understanding of “success” and the accordingly set up performance measurement approach serve as a necessary foundation for developing an integrated compensation system and for taking the right steering-direction. At the same time, managing the interaction of these elements ultimately facilitates successful value creation.

Consulting Services

Board Advisory
Governance Structure and Processes
Owner Strategy
Compensation Philosophy and Strategy
Variable Compensation Design including Short- and Long-Term Incentives
Succession
Regulatory Compliance and Related Services
Value-based Management
Target Setting and Parametrization
Performance Management
Pay-for-Sustainability
IPO Related Services
Compensation Disclosure and Stakeholder Communication

Publications

Dr. Stephan Hostettler, Herrmann J. Stern

Das Value Cockpit

to the book

Dr. Stephan Hostettler

Managersaläre

to the book

Dr. Hanna Hummel

Vergütungsstrukturen und Risikoverhalten von Banken vor dem Hintergrund regulatorischer Bedingungen

to the book

Head

Dr. Stephan Hostettler, lic.oec.HSG
Director of the Center for Governance & Compensation at SGMI Management Institute St. Gallen

Dr. Stephan Hostettler is the founder and managing partner of HCM International and has been active as an entrepreneur and consultant in Switzerland, the US, Europe and other regions since 2002. Prior to this, he worked for a major Swiss bank in the area of financial analysis and as a consultant on corporate finance and corporate governance in the US. His teaching activities at the University of St. Gallen, his research as well as publications and commentaries have made him an expert and thought leader in the topics of corporate governance, value-based management and executive compensation. As part of his consulting practice, he has advised more than 350 companies on the implementation of concrete recommendations. Stephan Hostettler has also become a renowned guest speaker at various conferences, including the TED Talks. He holds a doctorate degree in finance from the University of St. Gallen. Through his numerous consulting projects, he gained relevant experiences in the following areas:

Board Advisory
Governance Structure and Processes
Owner Strategy
Succession
Value-based Management
Target Setting and Parametrization
Performance Management
Compensation Disclosure and Stakeholder Communication

Dr. Hanna Hummel, M.A.HSG
Co-Director of the Center for Governance & Compensation at SGMI Management Institute St. Gallen

Dr. Hanna Hummel is a manager at HCM International and has eight years’ experience in compensation, governance and compliance advisory with a special focus on financial companies. Her experience covers reviewing and revising remuneration systems at different levels regarding strategic alignment and incentive effects as well as regulatory compliance. Hanna Hummel graduated from University of St. Gallen as Master of Arts in Banking & Finance. She completed her doctoral study as Dr. rer. oek. at University of Wuppertal on the question of how compensation structures and bank risk are related in the regulatory context. Through her consulting projects, she gained relevant experiences in the following areas:

Board Advisory
Regulatory Compliance
Governance Structure and Processes
Risk-based Banking
Compensation Philosophy and Strategy
Variable Compensation Design including Short- and Long-Term Incentives

Center for Governance & Compensation

Consulting Services

Publications