Part 2 of OKR-Misconceptions: Linking Rewards with OKRs

With OKRs being the talk of the performance management town, it is mostly being used as a buzzword rather than people trying to understand its actual capability and what to expect from this tool.

Many leaders and OKRs enthusiasts confuse OKRs with a performance evaluation tool. The answer to this is OKRs are not an evaluation tool and they shouldn’t ideally be used as means of linking employees’ performance with rewards.

Now, the question that can follow up this argument is-

  • If OKRs are not a performance evaluation tool then what are they? 
  • Why shouldn’t OKRs be not linked with Rewards, after all, all the employees deserve them for the work that they do? 

OKRs allows the employees to set stretch and ambitious goals for themselves. Often it is said that OKRs should be such that anything beyond 70%achievementis indicative of high-level development of the individual, thus OKRs are more of a Personal Development Tool rather than a performance evaluation tool.

Now, what will happen if we start linking OKRs with rewards? Let us take a simple example of two employees of an organization, Ross and Phoebe. Both of them work in the same department, have the same pay grade and are asked to set their quarterly OKRs.

Both Ross and Phoebe are extremely high performers but knowing that their performances in the OKRs will affect the rewards, what Ross did was negotiate with the management and downplayed in terms of settings stretch and ambitious objectives so that they become more achievable.

On the other hand, Phoebe focused more on setting such OKRs that were not only ambitious but will give her a great opportunity to develop her personal skills.

At the end of the quarter, Ross achieved 100% of his OKRs and received a generous increment whereas, Phoebe having achieved 80% of her OKRs received an average raise.

Did Phoebe deserve more raise than Ross? Of course, she did because her goals were more ambitious and Ross’s was more downplayed and achievable. But did that happen in reality? The answer is no.

The reason the reality is different from what should actually be the case is when we try to link OKRs with rewards, we try to visualize it objectively. To visualize it objectively, the human mind tries to put it in a mathematical formulation. In this case, the reward was a function of achievements and paygrade.

When the rewards are just a function of these factors, without taking into consideration the quality of OKRs that was set, then such discrepancies are inevitable.

Every individual wants to be rewarded for the efforts and dedication they are putting in. When the OKRs are tied to rewards, employees will hesitate or not even set stretch goals because they will know if they can’t achieve those, they would not get the rewards they deserve.

On the other hand, if OKRs aren’t used as a substitute for performance evaluation, employees will be more willing to stretch their goals and achieve the maximum of them.

Keeping the purpose of OKRs intact which is to set ambitious goals, an organization can introduce the concept of Extra Miles in their performance evaluation cycle.

Extra miles can be classified into two subgroups- one is extra miles Goals and the other is extra miles categories.

As the name suggests, extra miles is something that is done beyond what was set or determined. So, if an employee decides to perform some goals that are out of the box in nature, the same can be evaluated as a part of the evaluation of the existing goals but giving an extra level up in the score because of the weightage these extra miles goals carry or they can be evaluated separately beyond the existing total score to truly value the efforts put by the employees.

Let us take some simple scenarios involving Ross and Phoebe to understand the concept better.

Scenario 1:

Ross had 5 preset goals that he needs to perform in the current review cycle. These 5 goals will be evaluated on a total of 100% but he decided to add one more out of the box goal that he wants to achieve along with the other 5. He decides to put a 20% weightage on that goal. Now, the total evaluation calculation will be based on 100% itself but due to the addition of this goal, Ross’s score will go up beyond what he achieved based on the other 5 goals.

For example, if the score for 5 goals as a product of ratings and weightage comes to 60% out of 100, and say he gets a rating of 4 on his 6th extra mile goal, so the score on that particular goal will be 0.80 or 8%. So now his total score will be 68% out of 100.

Scenario 2: 

Phoebe had a similar scenario except that the extra goal needs a category of its own with an additional weightage of 20%. In this scenario thus, the evaluation will be based on 100 + 20 = 120%.

This scenario is particularly useful when employees have to perform some special projects that take their extra time and resources more than some out of the box goals will take. This is a great way to reward the extra effort they put into the process.

Thus we can see in both these cases the extra effort that the employees are putting by going beyond what is assigned to them is taken into consideration some way or the other and is adding an extra push to their evaluation score. If an organization can introduce such a system where these extra goals are evaluated based on their nature, then the employees will be more willing to set up such goals without hesitating how that will affect their initial overall score.

Few other factors that organizations should make consideration for when rewarding OKRs other than achievement and pay grade.

  • The quality of the goal – whether it is something achievable or stretch/ambitious.

Now many people will claim that this function is subjective, thus a standardization should also be maintained in the organization for reference.

  • The willingness of the employees to challenge themselves and upgrade their skills and indulge in personal development.

Assessment on the same line can help organizations fill up this gap in the knowledge of employees’ willingness.

In conclusion, it is the best approach to not link OKRs with rewards as it will do more harm than good and will stunt the overall development of the organization. So, a parallel review cycle or assessment tool like 360 feedback or even introducing a special extra miles criteria to evaluate these stretch goals should be used to base rewards on the same.

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