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5 leadership skills to keep you successful in a changing world

Published by Christina Huebschen

It is not easy these days to be a leader. We live in new realities. Society is about to take a leap forward, similar to the time of the Industrial Revolution and we are climbing to the next level. This means changes in technology, in the power structures that rule society, and in organizations. The way we collaborate is impacted, too. To remain successful in this changing world, the following five skills will help: 

1.  Sense and respond

The pace of change is huge, and so is the scope of change. Change is changing. We no longer have start and end dates; change is happening all the time and literally anywhere. Be it at work or in our private lives, things are turning fast. The dynamics of change require us to constantly adapt to new realities and learn new technologies and skills. We used to learn methods for coping with change, and there were many change management tools. The current reality is getting the better of these tools, and we cannot “manage” change anymore as we used to. What we need is to be on top of the changing requirements around us, and we need to respond to them – constantly and fast. Robertson and Laloux describe it as riding a bike where we have a direction, but constantly sense and respond. When we ride a bike, we are present, we take in lots of input and we constantly adjust to the reality in front of us. This is what we need to do in business, too. Sensing and responding – an evolutionary leadership. Helpful methods to support us with that are “agile” or “design thinking”. 

2.  Resilience

The pace, the amount and the complexity of change can be pretty overwhelming. This has an effect on health, and while health challenges used to be our private problem, they are on the agenda for leadership today. Burnout cannot be neglected anymore; it is a sad part of our daily work. To be able to manage uncertainty and the number of changes, resilience is the skill we need to develop. Resilience is what gives people the psychological capacity to cope with stress and hardship. It helps to overcome setbacks and better cope with challenges. Self-reflection is a fundamental aspect of resilience. Both self-reflection and resilience can be built with mindfulness. Mindfulness is the awareness that arises through paying attention, purposely, non-judgmentally. It is a kind of wake-up call to become conscious of how we respond to life’s situations. The more mindful we are, the more resilient we become. Resilience is important for the individual, but also for teams and organizations. 

3.  Lifelong learning

Education does not stop with a degree. We cannot rely on what we learned before the age of 25. We also cannot rely on what we have learned working 20 years in the same job. We have to build new capabilities throughout our entire life. The challenge here is that while many young people have grown up as digital natives, older generations also need to learn how to learn using distance learning, massive, open online courses and other digital resources. 

4.  Letting go

The skill of letting go is probably the hardest skill to learn. “We’ve always done it that way” is a killer sentence in today’s business. We might need to unlearn what we have learned. It is hard, because what we have learnt has made us successful. And we do not yet fully know what is needed to be successful tomorrow. On top of this, not only do we need to let go of practices or tools from the past, we also need to let go of power and status. Now, think of most members of top management – many are in the baby boomer generation, and only a small group is willing to let go of power and status as we know it. “The number of people who report to you” or “tiles” are still important in society. As we are on the cusp of change, it requires a lot of courage to let go of these things. This leads to conflict in organizations, resulting in low engagement. Companies are rolling out “agile” methods, while top management still acts in the same hierarchical manner as before. This is not really a recipe for success and only demotivates employees who are asked to work in an agile way. 

5.  Building teams

There is a strong shift away from the individual to collective intelligence. Whereas individual performance management was the main driver in the past, we now need to learn how to work collaboratively and get the most out of a team, not just an individual anymore. Building successful teams is an imperative skill to learn. A very helpful source for learning it is the outcome of “Aristotle”, a project that Google started a few years back to understand the secret sauce of a high performing team. The interesting outcome was that it did not matter who was on the team. Friends or not, same academic background or not – it  did not seem to matter. What really mattered was the way they treated each other. Psychological safety had the biggest impact. Speaking up without the fear that what you say will be held against you later was developed in teams where there was equality in conversational turn-taking, where team members listened to each other carefully and they were empathic about how others in the team felt. Next to psychological safety, there were four other ingredients in the secret sauce of success: clarity, meaningfulness, impact, and reliability. The project was called Aristotle for a good reason, as it was he who said “The whole is greater than the sum of its parts”. 

Looking at these five skills, we should not underestimate the effort required to develop them. While we all have a responsibility to ourselves and need to invest personally, C-level management together with their HR teams need to work together closely to empower people. Yes, it requires time, focus, thinking and a lot of inner work to build them up, but it is worth it – for the individual and for the company’s success. 

From performance management to people development: exploring other paths that lead to high performing culture

Published by Christina Huebschen

Many HR specialists are currently giving much thought to how well-established processes can be adapted to new circumstances. Transformation and digital disruption are much more than meaningless buzzwords. At Avaloq, we have taken the bold step of radically changing all major people processes as part of a corporate culture campaign. We will present our solution in this article. The reason we are doing this is not because we think that ours is the only right way, but because we are convinced that we can improve by exchanging ideas. All that matters to us in the end is having an excellent model for our employees and our company.

What did we use in the past?

We used to use a conventional performance management model, just as many companies still do today: target setting at the start of the year followed by an appraisal both during and at the end of the year; this was of course done based on Gaussian distribution. Individual bonus payments were directly related to this and were calculated by multiplying the personal rating by the company success and a percentage of the salary.

Our employees’ feedback on this was very sobering: at best, the process was perceived as not motivating, even by high performers. One point of criticism was the setting of targets: it was felt the process was too inflexible, as targets needed to be easily adapted to changing circumstances and could rarely be rigidly fixed to one year. It was also felt that a performance appraisal based solely on targets did not take account of the employee’s overall performance and all the other work that cropped up. Another point of criticism dominated all of the discussions: managers gave their feedback in such a way so as to ensure that the bonuses were ultimately within budget; it had nothing to do with individual performance, it was just a mere “formula for bonus allocation”. And my personal favourite piece of feedback: “Was there a field for employee development? Yes, that’s right, there was. We sent it to HR, but I never heard anything more about it.”

What have we changed and why?

When launching a new model, our main concern was focusing on the following key issues: employee motivation, employee development and nexus.

1.    The targets: jointly formulated and jointly evaluated! 

Clear orientation, greater transparency and flexibility, commitment and buy-in

With regard to target setting, we gave a lot of thought to whether we should do away with this process altogether. What employee doesn’t know what they have to do when they arrive at work in the morning? However, our employees stopped us from doing this. Most of them wanted to maintain a target setting process, above all for the sake of orientation. The key points in the discussion were employee’s wanting to know what the company was working on outside of their individual areas and how they contributed to the company strategy. And of course flexibility – a demand that arises from the fast pace of today’s society.

We have made the following changes:

Joint formulation of targets in teams

The strategy and top targets of each area are defined in a top-down approach, but the way in which we achieve them is determined jointly by the team. This allows us to achieve a completely different commitment and buy-in.

Introduction of quarterly versus annual targets 

To ensure the greatest possible flexibility, the teams themselves can set the time frame in which they want to achieve a target. Typically, this is three months. In the pursuit of agile work methods, this enables us to achieve quicker results, albeit in smaller work packages. This also results in constant feedback about where we are and generates the necessary vigour so that we can adapt as quickly as possible to new circumstances or priorities.

Joint evaluation of target achievement

At the end of each target cycle, we jointly evaluate our work as a team: did we achieve our targets and how did we achieve them? Individuals are not evaluated in the process, only whether or not the target was achieved.

Joint consideration of how we worked together as a team in achieving our targets

Teamwork is essential for our success, which is why we consciously evaluate how we have worked together as a team. The key goals here are primarily communication and more conscious interaction with each other.

Total transparency

At Avaloq, everyone has access to all information, except when it is defined as confidential due to legal and factual circumstances. This is also true for targets as well as for evaluations. In this way, we are establishing a new level of transparency that we previously did not have.

2.    Employee perspectives: specific talks – initiated by employees 

Understanding what drives, motivates and energises each employee

We have divided the area of employee development into two different parts: employees’ growth into their position and long-term career development. The annual perspectives talk focuses on long-term development.

We have made the following changes:

Separate annual talk on the topic of career development 

We have consciously separated the career talk from all other people processes so that it is given the right focus, energy and time. This talk should convey appreciation.

Voluntary – employees initiate the talk 

We believe that career development is to a large extent also the individual responsibility of each employee. Employees who want to have this talk should initiate it. It is completely voluntary.

Dedicated tool 

We use dedicated software for this talk, where employees have to answer questions and may also record joint agreements with management. Using software for this has the advantage of ensuring much better talent management thanks to systematic analytics.

Usefulness survey 

Afterwards, employees receive an e-mail asking them to assess the quality of the talk. After 11 months, they submit their reply on whether the talk was of any benefit. We are also transparent with this information and will publish the cumulative results.

Above all, we would like to achieve the following with these talks: management should better understand what motivates and drives employees and what makes them feel positive. The talk should be a proper exchange that includes topics such as what can be achieved, changed or tackled both generally and in specific details so that employees can realise their full potential.

3.    Employee feedback (growing into the position) 

Honest, targeted talks for development

Employee feedback talks are geared towards how employees are growing into their positions. We consciously set out to break away from the conventional appraisal, the mere mention of which makes many people’s blood run cold. The challenge here was the fact that we have a lot of young managers and had criminally neglected the topic of management development in the past.

We have made the following changes:

Differentiated (!) feedback 

We have scrapped overall appraisals of employees. Performance grades are also a thing of the past. Instead, employees are given individualised feedback on their personal contribution to achieving targets, on the skills required for their position and on the way in which they perform their everyday tasks. They are also given feedback on how they put our values into practice as well as on any overreaching strengths. Recommended action needed to enable the employee to grow more into the position is identified jointly.

Text-based scales geared towards development 

The rating scales that we would like to use in the future were quite a conundrum for us. Do we need a three-, five- or nine-level scale? Should we use numbers or letters? After much thought, we opted for a text-based scale. We wanted to get as far away as possible from an absolute judgement, which often feels like a sentencing. Our text-based scales are worded in such a way that they are all geared towards development concepts.

Simple yet powerful leadership tools 

To support feedback talks as effectively as possible, we use simple yet powerful leadership tools. An example of this is Professor Hilb’s maturity cycle which describes the various phases of development potential and performance. The model is explained in a straightforward way, can be clearly represented in a tool and enables even less experienced leaders to make good statements. What we particularly like about it is the fact that the cycle factors in continuous change. This enables us to give feedback without labelling employees in such a way that they can never change that label.

Dedicated tool

We also use software for the feedback process, with analytics that are designed for structured talent management.

No more linking of the bonus with feedback

We have done away with individual performance bonuses at Avaloq. One particularly positive side effect of this decision is the fact that the feedback given to employees is focused solely on their development and not on the payment of a certain sum of money.

Transparency: survey of the quality of the talk and the process 

Lastly, we are also implementing another type of transparency with the feedback talk: all employees are asked after the talk if they are satisfied with a) the quality and b) the content of the talk. This information is also published in cumulative form.

4. Money: change of compensation model 

Success sharing, fairness and consistency, extraordinary achievement rewards 

As previously mentioned, we have done away with individual performance bonuses. However, we share our success with our employees in the form of an annual payment. This is now based on joint success only and no longer on individual success.

We have made the following changes:

No more individual performance bonuses 

As our company is in the innovation business, and networking and collaboration are the main key to success, we have done away with individual performance bonuses. You can find further information on this in the article “How to find the right bonus schemes to boost innovation”.

Introducing success share units: 

Every position in the company is assigned a number of success share units. The number of these units is always the same for the same position grade; in other words, there are no individual differences. The success share units are paid out once a year, and their amount depends on the company success that we achieve jointly.

Introducing an extraordinary achievement budget 

We also provide a budget for special achievements, which can be used for teams or individuals whenever extraordinary commitment should be commended. The reward is paid out soon after the special achievement is made. You can find further information on this in the article “Working world needs new compensation models”.

This set of changes has taken us on a journey that is far from finished. Currently, we are examining our organisational and cooperation models. The guiding questions here, in particular, are how leadership is changing, whether pyramids are still the right organisational structure, how we ensure strong cooperation both internally and externally at local and international levels. We look forward to this and to interesting exchanges.

Working world needs new compensation models

Published by Christina Huebschen

As described in the article “How to find the right bonus schemes to boost innovation”, the age of traditional compensation models is over in companies whose success rests on their ability to innovate. Rather than effectively serving its purpose of increasing employee motivation, performance-based remuneration actually restricts employee creativity in some cases, as shown by studies and experiments. Nevertheless, many companies are finding it hard to break with Gaussian employee classifications, performance-based bonus parameters or complex bonus-malus systems. Compensation models that back employee development, team spirit and motivation would contribute considerably more to a company’s long-term success and innovation than promised bonuses.  

For years, companies have managed their compensation models based on the “pay for performance” principle. These still widespread extrinsic models try to motivate employees using monetary incentives. At worst, they produce egotistical, go-it-alone individuals, or, as illustrated by examples from large banks, they entice employees to operate in legal grey areas in order to achieve their performance targets and pocket higher bonuses in return. 

In contrast to this, there are studies that examine the intrinsic motivation of employees who gain satisfaction from their working life because they are doing work that they consider meaningful and interesting, that furthers them in their development and that they can perform autonomously. They are motivated by the work itself and not by external, material or non-material incentives. The term intrinsic motivation may well cause some to shake their heads in amusement as they contend that not everyone works because they get a great sense of fulfillment from it, or people still need to earn a living. But when you look at what really motivates employees, there is no escaping the topics of personal development, self-improvement, autonomy, and doing something worthwhile. And the generations that are entering the labour market now give more and more importance to these topics.

This does not mean that money is not important. While money may not be a motivator, it does however prove to be a demotivating factor if the total remuneration is ultimately not right or people have the feeling that they are getting a smaller piece of the pie than others.

To summarize:

  • Money does not motivate and at worst leads to poorer performance.
  • Money can demotivate; the total remuneration must be right, fair and consistent.
  • Motivation stems from the opportunity for self-development, the urge to direct our lives autonomously and the yearning to do something in the service of something larger than ourselves (see Dan Pink – The puzzle of motivation).

No magic formula for non-traditional compensation models

There is no golden formula for compensation models – every company should define for itself which values form the basis of its models and which parameters help most to strengthen motivation, team spirit and corporate values. One option is to consistently align variable compensation with the company’s success. The amount of the variable wage component is based solely on the result the company achieves at the end of the year. This uncompromising option should strengthen team spirit, curb egotism and the silo mentality, and keep employees focused on the company’s success as a common goal. However, there is also the danger here that particularly hard-working employees have the impression they go unnoticed.

The “Avaloq compensation model”

At Avaloq, we have moved away from our “pay for performance” compensation model in the past year and developed a new model that is based on three components. We have made a conscious decision to continue paying variable monetary compensation but to no longer base it on individual performances. Instead, the focus of the new model is on the company’s success that we achieve together.

The new model is based on three cornerstones: the base salary, Success Share Units and an Extraordinary Achievement Award.

  1. Base salary: As before, every employee receives a base salary every month in line with market standards. The pay band in this respect is determined by the position. A position has up to four proficiency levels and the pay band increases with each level. The focus here is on the employee’s development in the position. Our managers receive detailed information about where the employee is positioned on the pay band and also in comparison with the external market so that conscious, informed decisions can be taken at the annual salary review.
  2.  Success Share Units: If we achieve success, then we want to share that success with our employees. Every position is therefore assigned a number of Success Share Units. The number of units increases with each proficiency level, but this number is always the same for the same position and proficiency level. No difference is made on an individual basis. The Success Share Units are paid out once a year, and their amount depends on the success that we achieve together. In this way, we concentrate on putting the emphasis on the success of the company as a whole: we achieve success only when we all pull in the same direction and work together for our company.
  3.  Extraordinary Achievement Award: As there will always be special situations or outstanding contributions, we have also made a budget available for “special achievements”. The Extraordinary Achievement Award is paid whenever a team or individual employees should be rewarded for their extraordinary performance. Anyone can be nominated for this award. The criterion for the award is strong dedication to the company’s values by teams and employees, which thus strengthens the networking component. This budget also makes it possible to treat interdisciplinary teams equally, thus blurring the lines between organisational units.

However, our compensation model does not work “on its own”. The wider context and our adapted management tools must be considered in order to get a complete picture of what we want to achieve. For instance, we have also changed the processes for target setting, feedback and employee development and added them to the overall topic of development and networking.

We are convinced that with our compensation model and new leadership tools, we have found a fair and transparent way of compensating our employees, moving away from performance-driven incentive schemes towards a model that backs intrinsic motivation. Perhaps you are interested in a similar model for your company, too?

Get in touch if you would like to exchange experiences.

How to find the right bonus schemes to boost innovation

Published by Christina Huebschen

Many companies still try to motivate their employees by offering performance-related bonuses. But in doing so they are ignoring the findings of various sociological and psychological studies: Financial incentives are no guarantee of improved performance. As a matter of fact, they can have the opposite effect and stifle both the creative design process and innovation.

Irrespectively, not many companies are confident enough to question the traditional bonus system. While they may have difficulties finding the right system, there is also the worry that they might have to increase base salaries, which is a step that cannot easily be undone and will increase the company’s cost base. 

Asking the right questions to find the adequate solution

Once decision-makers have decided to abandon traditional performance-related bonuses they are faced with a challenge: Finding the adequate remuneration model is tricky and time-consuming. There is no one-size-fits-all solution. It varies from company to company and industry to industry. However there is a number of questions that can help HR strategists and CEOs to assess the right model for their company: 

  1. What actually motivates our staff? 

Bear in mind the basic principles when it comes to motivation. This applies for all people processes, not just bonuses. Take a look at the presentation by Dan Pink, who talks about how to unravel the puzzle of motivation in one of his most famous Ted Talks. According to Pink, the true drivers of motivation are purpose, autonomy and mastery: Purpose – The yearning to do what we do in the service of something larger than ourselves. Autonomy – The urge to direct our own lives. Mastery – The desire to get better and better at something that matters. This bears no relation to what can be achieved with a performance-related bonus. 

2. Do we have an innovation culture? 

“Culture eats strategy for breakfast!” is a quote that can often be found in articles about strategy and change management. This statement is often attributed to Peter Drucker, who believes that even the best of strategies amount to nothing if a company does not have the right culture. In other words, having the right innovation tools at our disposal does not mean that we automatically become innovative. In this respect, an innovation culture plays a far more important role. 

Many companies in the high-tech sector are leading the way in this regard: They foster their employees’ individual strengths and sense of initiative, motivating them through recognition. Many tech companies give their software developers a certain percentage of their working time to do something that interests them personally. It is during this time that many globally successful, innovative products are said to have originated. Other companies focus on collaboration and the pursuit of common goals: Here employees are not assessed individually, but as a team. They determine their own goals as well as how they would like to achieve them. The goals are also assessed in the team – on a collective basis. Everybody is then apportioned an equal share of the company’s profit. 

3. Is our remuneration system fair, consistent and transparent? 

Various sociological and psychological studies have shown that performance-related bonuses do not actually motivate staff. We cannot, however, neglect the fact that if somebody believes they are being paid the wrong amount, this can have a real demotivating effect. It is interesting to note people are always demotivated by their pay if they believe that they are being paid less than their peers. The comparative effect here is key. That is why fairness and consistency are the linchpins of a successful remuneration model. When combined with transparency, they increase acceptance among staff. Transparency does not necessarily mean disclosing what everybody gets paid, although some companies have started doing this. Transparency can also be achieved by communicating the model and the rules for it – and then obviously sticking to these rules. 

4. Why not share your success? 

One good option for a variable remuneration system could be to share a company’s profits with employees. This is especially the case in network-driven industries. We are only successful when we work together – so we will also share our profits. One option could be to introduce the “Success Share Units” system. Here, each employee receives a number of units. Then each year, the value of a Success Share Unit is calculated based on the company’s profit and these are then paid out to staff. The more transparently the value of a unit is communicated on an ongoing basis – even during the year – the higher the acceptance among staff.

5. Do “spot” rewards help? 

Depending on the goals we are pursuing, “spot” rewards can play a key role. Here there are various options, which can be individually tailored to companies’ needs. For example, management could have a budget, which they could use at any time, i.e. straightaway, as a token of their appreciation for certain achievements. This budget could also be handed over directly to employees. Any employee can nominate and reward any other member of staff for a certain achievement. This could be linked to values, culture or particular goals. The reward itself can also vary, from a one-time cash payment to individual choices, much like the frequent flyer programs offered by many airlines. 

In sectors where numbers and KPIs are king, this may sound like some sort of unrealistic dream. However, there have been many examples of companies that have successfully used this principle. They have understood that innovation and creativity cannot simply be prescribed from above, or financially incentivized, but must instead be achieved through intrinsic sources of motivation. 

In the end, no matter which model you decide on: nothing will replace the impact of real personal appreciation and a sincere “Thank you”!