Should OKRs be linked to compensation and performance reviews?
The answer from virtually every expert is an emphatic no. Directly tying OKR scores to bonuses, salary increases, or promotions is the single fastest way to guarantee your implementation will fail.
This isn't a suggestion; it's the cardinal rule of a healthy OKR culture.
Why Tying OKRs to Money is a Fatal Mistake
The core purpose of OKRs is to foster psychological safety, encouraging teams to set ambitious "stretch" goals that drive innovation and breakthrough performance.
When you link these goals directly to compensation, you fundamentally break the system:
- It Destroys Ambition: The conversation immediately shifts from "What amazing things could we achieve?" to "What goal can I set that is 100% achievable to guarantee my bonus?" This behavior, known as "sandbagging," replaces aspirational goals with safe, low-bar targets.
- It Punishes Honest Failure: Ambitious goals sometimes result in "failure." When a bonus is on the line, teams will avoid innovative risks and stick to what they already know how to do. You lose the learning and growth that comes from stretching beyond the comfort zone.
- It Turns a Collaborative Tool into a Negotiation: OKRs are meant to be a tool for alignment and team performance. Tying them to pay turns them into a contentious, individualistic negotiation between an employee and their manager.
The Right Way: Separate Goals from Performance
While OKRs should be decoupled from formulas and direct calculations for pay, they are a valuable input into performance conversations. The two processes are separate but connected:
- OKRs measure the achievement of the team's goals. The focus is on collective success and impact.
- Performance reviews assess an individual's contribution. The conversation is much broader, focusing on behaviors, skills, collaboration, and problem-solving in the context of those team goals.
An OKR score should never be the sole factor in a performance review. Instead, it should be a starting point for a rich conversation about an individual's impact, learnings, and contributions to the team's success.
Design a Fair and Motivating Performance System
Navigating the intersection of OKRs and performance management is one of the most challenging aspects of a successful implementation. Getting it right is critical for motivating your team and driving results.
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