Should OKRs be part of employee bonus and salary schemes?

In This Answer

Should OKRs Be Tied to Employee Bonuses and Salaries?

As more organizations adopt OKRs (Objectives and Key Results) to drive focus and alignment, a key question arises:

Should OKRs be linked to employee compensation and bonuses?

At first glance, this seems logical. If goals are met, why not reward the people responsible? But dig a little deeper, and the answer becomes more nuanced.

The Core Purpose of OKRs

OKRs were designed to encourage ambitious goal-setting, strategic focus, and transparency across teams.

Their purpose is not to evaluate individual performance but to:

Align efforts toward shared outcomes
Inspire bold thinking through stretch goals
Encourage learning from both success and failure

Linking OKRs directly to pay can dilute or even derail these benefits.

Why Tying OKRs to Pay Can Backfire

Here’s what often happens when OKRs are tied to financial incentives:

1. Safe Targets Over Stretch Goals

If achieving an OKR means earning a bonus, employees are more likely to:

Set conservative goals they’re sure to hit
Avoid risk-taking or experimentation
Prioritize short-term wins over long-term impact

This undermines the very spirit of OKRs — aiming high and learning along the way.

2. Focus Shifts from Impact to Evaluation

Instead of using OKRs to guide focus and collaboration, teams may begin to treat them as scorecards for personal gain. This can lead to:

Unhealthy competition
Siloed thinking
Less transparency about real progress

3. Punishing Failure Blocks Innovation

OKRs are meant to promote bold thinking. Missing a stretch goal isn’t failure — it’s feedback. But when money is on the line, teams may:

Hide issues or inflate results
Avoid reporting what’s not working
Play it safe to avoid “losing” their bonus

When Compensation and OKRs Can Coexist

This doesn’t mean OKRs and performance management must live in completely separate worlds. In fact, OKRs can provide useful context during performance reviews or career development discussions.

Here’s how to approach it instead:

Use OKR progress as input, not the sole basis for pay decisions
Discuss behaviors and contributions related to OKRs (e.g., initiative, collaboration, problem-solving)
Reward efforts that align with the company’s strategic direction — even if outcomes fall short

Best Practice: Separate Motivation from Compensation

OKRs work best when they’re seen as tools for alignment and focus, not evaluation and reward.

Encourage ambitious goals. Create psychological safety to explore, learn, and improve. And keep financial incentives tied to broader performance assessments, not just OKR checkboxes.