One of the most sensitive and important decisions in any OKR implementation is how OKRs relate to performance reviews and compensation. Get this wrong and you risk undermining trust, discouraging stretch thinking, and weakening your entire OKR program.
Ben explains how OKRs and performance management should be distinct but related and why finding the right balance matters.
Two Wrong Answers to Avoid
Wrong Answer 1: OKRs are the performance management system
OKRs are designed to encourage stretch thinking and learning. If OKRs determine compensation or performance ratings, employees will naturally set safer goals and avoid stretch outcomes. This weakens the entire purpose of OKRs. To prevent confusion, avoid starting with individual level OKRs and be cautious when using HR tools that combine OKRs and performance reviews in one system.
Wrong Answer 2: OKRs have nothing to do with performance
OKRs should not be isolated from performance discussions. They should inform coaching, reflection, and development. The goal is not separation but alignment. OKRs and performance management should be distinct but connected.
Principle 1
Include OKRs in performance discussions through structured coaching questions
OKRs help individuals focus, learn, and improve. Many organizations incorporate OKRs into performance conversations using structured reflection questions such as:
Impact — Which key results did you most influence
Focus — How did OKRs help you prioritize your work
Communication — How did OKRs improve alignment and collaboration
Learning — What did you learn and how will you apply it
Some organizations hold separate OKR and performance conversations. This separation often strengthens clarity and increases meaningful manager employee dialogue throughout the year.
Principle 2
Do not use key result scores to calculate bonuses
Compensation should not be based on whether a key result is scored commit target or stretch. Linking scores to compensation encourages low targets and weakens stretch thinking.
However, the value of a metric may still influence compensation. For example:
Revenue growth may impact bonuses based on actual results not the score
Some key results may not connect to compensation at all but remain critical for learning and improvement
The distinction is subtle but essential. Scores guide learning and expectations not compensation.
Practical Guidance
Do
Engage HR leadership and executive sponsors early
Understand the current performance management system
Incorporate OKRs into performance conversations through structured questions
Do Not
Use key result scores to calculate bonuses
Launch OKRs and a new performance system at the same time
Begin with individual level OKRs which can blur the distinction between OKRs and evaluation
Done correctly, OKRs strengthen coaching, learning, and alignment without becoming a performance rating system. This balance enables teams to pursue ambitious goals while maintaining trust, clarity, and long term execution strength.
Request your free 1:1 Consult via Ben@OKRs.com
