Best Practices for Tying OKRs to Holiday Bonuses

By: Bastin Gerald, CEO, and Founder of Profit.co

It’s the most wonderful time of the year! Your end-of-year company review is coming up, your employees are excited about their holiday plans, and another year of hard work and achieving your goals is coming to a close!

If you use Objectives & Key Results in your organization, you’re probably thinking about where you started the year, and where you ended it. You might be reviewing long-term goals or taking a hard look at what went right with your annual objectives, and what did not.

In the midst of all this reflection, it’s important to remember the members of your team that helped make your organizational goals a reality. One way that many companies choose to recognize employees’ hard work is with holiday bonuses.

Holiday Bonuses & Employee Engagement

How does receiving holiday bonuses affect employees’ level of engagement and job satisfaction? Researchers have worked to decipher how exactly these relate to one another for a long time.

An article from the Harvard Business Review shares the results from a study conducted concerning employee engagement after receiving bonuses in a few ways– through performance-related pay and profit-related pay. Performance-related pay is when “bonuses are offered to individuals based on assessments of their performance. Meanwhile, profit-related pay is when “bonuses are offered to individuals based on assessments of their performance.”

This study from HBR found that “performance-related pay was positively associated with job satisfaction, organizational commitment, and trust in management. Profit-related pay did not have similar positive effects; in fact, some levels of profit-related pay resulted in employees being less committed and trusting management less.” So, according to these findings, giving bonuses based on performance can increase job satisfaction.

Using OKRs as a Performance Measurement

One of the main tenets of the OKR framework is the stretch goals. Stretch goals are ambitious “moon shot” goals that are incredibly difficult to achieve. These goals exist in order to push employees to their performance limits and to their full potential. That’s why completing even 70% of a set OKR is acceptable.

It’s important to always discourage a sandbagging culture in your organization when you use Objectives and Key Results. If your employees are “sandbagging” goals– setting low targets so that they can overachieve– you have already lost the main benefits of implementing the OKR framework.

That’s why OKR experts emphasize that OKRs should not be used to evaluate performance. In fact, OKRs and performance reviews should be two completely different processes, and low achievement on planned OKRs should never be used as a reason to give an employee a poor performance rating. This will only encourage a culture of fault-finding and sandbagging that you need to avoid at all costs.

So the question then becomes; if I can’t use OKRs in performance reviews, can I use them when determining Holiday Bonuses? The answer is “no.”

Best Practices for Tying OKRs to Holiday Bonuses

OKR achievement should not inform the holiday bonus amount for your employees. You cannot tie OKRs to compensation without compromising the integrity of your OKR program as a whole. With that being said, what are the best practices when it comes to giving holiday bonuses?

1.  Do Not Equate OKR Progress to Compensation Amount

Be careful not to use OKR progress as an indicator of the size of someone’s holiday bonus. This could encourage sandbagging and create a toxic workplace culture where employees are unwilling to help one another achieve goals and are focused on individual achievement rather than organizational progress.

2.  Measure Effort, Not Achievement

Instead of giving bonuses based on OKR achievement level, use OKRs to give smaller bonuses that speak towards the effort behind OKRs. For example, give bonuses based on who was most tireless with their OKR execution, who had exceptional check-ins, and who set ambitious goals with a clear strategy. This will encourage positive OKR behaviors in your organization and let employees know that their commitment to the framework is appreciated.

3.  Be Consistent Throughout your Organization

Make sure that you’re holding everyone accountable for their targets, and are consistent with how you are awarding holiday bonuses. If one person is getting a holiday bonus for consistent check-ins then everyone else who has consistent check-ins should get the same bonus. Maintaining a certain standard is how you can encourage desirable behaviors in your organization.

Final Thoughts

While you might be tempted to tie performance reviews and holiday bonuses directly to your OKRs, it’s important to consider the fact that preserving the integrity and vitality of your OKR program as a whole is more important than achievement-based holiday bonuses.

Instead, consider the other ways you can dole out bonuses this holiday season, and use the OKR framework as a guide, not a measurement tool.

Author bio: Bastin Gerald is the CEO and Founder of Profit.co, intuitive cloud-based software that helps teams manage their OKRs with focus and alignment. Additionally, Bastin is the CEO of Apptivo, a 200-person company that aims to provide an easy software solution for small and medium businesses. Bastin holds an MBA from the Wharton School at the University of Pennsylvania. Throughout his career, he has gained expertise in multiple strategy-execution frameworks, including Hoshin Kanri and Objectives and Key Results. Bastin has over ten years of experience coaching and training clients in transformation engagements and has trained upwards of 250 leaders across different industries and continents.