Should you separate OKRs from Salary Reviews?April 2, 2021
OKRs are a way for supervisors to set goals that will promote growth and development among employees. Businesses have been using these tracked goals and OKRs to make decisions on salaries for years, but is it necessary to separate the two, or should managers be combining OKRs and salary reviews?
It isn't surprising that 91% of companies want to tie performance to compensation. Often appraisals are the only formal record of an employee's work ethic and contribution to the business, proving it difficult to find other proper reasonings for salary review. However, when you directly combine OKRs and salary reviews, it can be detrimental to the workforce as OKRs should be used as a management tool, not an employee evaluation tool.
Many management or supervisory positions have differing opinions about whether you should combine OKR meetings with salary reviews. There are many factors to consider, but first, let's understand what each of them is.
What is an OKR?
OKR stands for Objectives and Key Results, a popular goal management framework that helps companies implement and execute strategy. The benefits of the framework include a better focus on results that matter, increased transparency, and a more strategic alignment. OKR achieves this by organizing employees and the work they do around attaining shared objectives.
If you're interested in setting and tracking your team's goals, Heartpace can optimize the OKR planning process even further by enhancing OKR tracking and products. Learn more about how OKRs work with Heartpace software, and if you're ready to implement OKRs in teams, then get started for free today.
What is a salary review?
Salary reviews are a regular part of most modern businesses. Despite their necessity, many business leaders are left wondering how to conduct a salary review properly. Heartpace makes the integration of performance management and salary review completely seamless. You can use employee performance data like 1 to 1 talks, goal setting and achievement, satisfaction surveys, and 360 evaluations to determine appropriate pay changes. If you are interested in learning how to conduct a better salary review with Heartpace, contact us today or check out our solutions page to learn more.
What are the pros and cons of combining OKRs and salary reviews?
First, let's talk about the negative side of combining OKRs and salary reviews. A big reason why some businesses think it's best to keep them separate is that salaries based on OKRs can lead to understated targets and overstated accomplishments.
For example, employee A works at a sales company, they have a solid work ethic and are very proactive in their job, but if, for some reason, they haven't achieved their monthly quota, then they could miss out on their monetary bonus. Whereas employee B doesn't work as hard as employee A but has a much lower sales target, it still manages to get their bonus every month. Employee B doesn't deserve the bonus as much as employee A, but due to the understated target for employee B, they are still expected to achieve their incentives. Such a culture can be very toxic in any organization as it can lead to an unfair analysis of employee performance. It can cause a lower level of collaboration between team members as they could feel that their work isn't appreciated or rewarded fairly.
However, in some cases, an increased salary or monetary compensation can be a strong incentive for employees to work harder. For example, employee B may start to work harder if they know they will be compensated. This could lead to positive results and OKRs being achieved more frequently. It does make sense that, if as part of your OKR setting sessions, you agreed on metrics that will indicate extraordinary success, you compensate when those are achieved.
OKRs and performance reviews serve different purposes, and it should be considered whether appropriate from organization to an organization if they should be coupled together.
Combining OKRs and salary reviews or bonuses, in this context, work best when they encourage employees to become ambitious and self-motivated. The positive side to combining the two is when employees and teams follow intrinsically motivating factors like autonomy, belonging, mastery, and taking on new challenges that inspire them.
However, once compensation or bonuses enter the picture, motivation can shift towards far less effective extrinsic goals, which means the behavior can skew towards looking good or laying the fault on others for any failures.
Whether you decide to combine OKRs and salary reviews or not, Heartpace is here to help. We will work with you to bring together performance, salary, pension, benefits, and all extra data you need to make a smooth and fair review that stays on budget. Find out more information here.