What about mine? How much will I collect from my variable?

On the one hand, in many companies there is the concept of “variable salary”, a part of the salary received by the employee based on results.

On the other hand, we have companies that are beginning to measure the impact of their teams and individuals on strategic objectives.

Then someone smart and savvy comes along and poses:

“what if we link the bonus to OKRs?

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You’d be surprised how many times in formations this question comes up and it’s usually “woke” people who ask it.

It’s a seamless plan, we link variable pay to individual contribution to the company’s strategic objectives – or not!

Spoiler:

It is NOT a good idea to link the Bonus to OKRs for several reasons that we will discover in this article.

The perversion of the variable

Before going into detail about the relationship between OKRs and bonuses or variable pay, I would like to tell you 2 stories about my experience in managing bonuses.

Eyjafjöll

You might think that I tried to clean the keyboard and this word was typed. But no!

Eyjafjöll is the name of a volcano in Iceland that erupted in late 2010, remember it? I do, and I’m sure all my colleagues at the company I was at did too.

That year there was no bonus because a volcano covered the skies over Europe with ash and those of us who were spread across Europe on different clients could not fly home and rental cars and trains increased costs, and then there were NO SALARY INCREASES!

Unbelievable that a company with tens of millions in profit would do that?

It’s really NOT unbelievable, it’s perverse! Such as the use of variable pay.

These are my objectives, if you don’t like them, I’ll change them.

The process of defining the variable often starts with a meeting with your manager where we discuss the objectives we want to achieve.

These meetings seek an agreement where the objectives set are challenging but can be met at the end of the year in order to collect the variable and everyone is happy!

Usually, halfway through the year, we sit down together again to review the objectives, those objectives that we haven’t looked at for 5 months and have completely ignored.

3 things can happen with these targets:

• We have already achieved them. Olé you, ole you!
• Not applicable
• We become aware that they are impossible to achieve

In the case that we have already achieved them, the typical thing to do is to increase a little the objective to “force”, “motivate” to make a little more effort in the second half of the year.

Another option: no longer applicable. Well, it’s easy, we remove it and look for another one… sound familiar?

And in the case of realizing that it will be impossible to achieve that result, we either lower it to a level that is achievable or we remove it and put a new one that is achievable.

In my working life I have always found this very useful (irony).

has this ever happened to you?

Link OKR to the bonus

As we said in the introduction: it is NOT a good idea to link the Bonus to the OKRs.

When we talk about money and motivations, 2 elements always come to mind:

The first is a quote from Naval Ravikant:

And the second is the numerous studies that show that at a certain point in salary, an increase in salary does not directly translate into an increase in happiness.

“the best use of money is to pay people enough to get the money thing out of their head.”

Reasons not to use OKR for Bonus

There are several reasons why the use of OKRs linked to a bonus is discouraged.

The main reason is due to the definition of the Objective. The objectives of OKRs by definition must be ambitious and are usually qualitative:

• If the objectives are ambitious, you will never reach 100%.
• If the objectives are qualitative, you will not be able to quantify the percentage of achievement of the objectives.

Other reasons are:

• OKRs should be enough of a motivator on their own. OKRs seek to awaken intrinsic motivations, not material or extrinsic ones.
• It may not make sense to lower OKRs at the individual level. In some cases, due to the nature of the work, OKRs at the individual level are not applicable.

Although there may be others, these are, in my view, the fundamental ones.

Let’s see it in detail.

OKRs must be ambitious

If the objectives are ambitious, achieving them is almost an oxymoron. So if we link bonuses to reaching an objective designed to motivate and try to get as close to the maximum possible but not reach it, we are establishing that the bonus will never be achievable.

An awakened mind immediately sees that we have 2 options. And this IS REAL, we have seen it in organizations:

• Link the bonus to reaching 80% of the KRs.
• Set the KR to 125% so that 100% is achievable.

In both cases we are perverting the system….

If we link the bonus to 80% of the KRs:

• There may be some non-compliant managers who deliver 100% of the variable when only 80% has been achieved.
• Besides, if as an individual I reach 80% and it assures me 100% of the bonus, what motivation am I going to have to try to reach 90% or 95%?

On the other hand, if what is done is to establish a KR so that the ceiling is 125%, it is true that in the face of managers the Objective or KRs are seen as having reached 100%, but we continue to lose one of the powers of OKRs, which is intrinsic motivation. If I have reached 100%, what motivates me to go for 125%?

Objectives are qualitative

How can we be accurate in measuring an aspect that is qualitative? We cannot will always be subjective.

But of course, we have the KRs, which are quantitative! So to decide the variable part of the salary we can do it by measuring the KRs.

But this has certain drawbacks:

• The first is the one mentioned in the previous point: KRs should never be reached at 100%. And if it happens there is the remote possibility of an incredible job, but 99% of the time it will be because we are unambitious and have set them to minimums; or because we have made a mistake and set them to low values.
• KRs are metrics that we “believe” will tell us how close we are getting to our objectives. But it often happens, however, that these metrics are not correlated with the objectives. That is, I can get a low increase in the metric and impact the target a lot; or on the contrary, I can get a very high KR value but the target is not affected.

OKRs must be the motivation

OKRs should not be linked to material incentives because with OKRs we seek to awaken people’s intrinsic motivations.

The fact of being able to contribute to a strategic objective, having the perspective of how one impacts the organization and feeling that the work one does has a transcendence beyond the team, should be a sufficiently powerful motivator for people.

In fact, as reported in the book “Drive: the surprising truth about what motivates us” by Daniel Pink, there are 3 motivators intrinsic to every human being that occur to a greater or lesser extent. One of them is the purpose, the rest I leave you the video in case you want to discover it.

Individual OKRs show no impact

If OKRs are lowered at the individual level, it is very unlikely to show the impact of an individual on the company’s OKRs.

Does it make sense to link a person’s salary to results that do not show the impact at the company level? It does not seem to further the idea of alignment sought with OKRs.

Also, if we are encouraging collaboration and team building, we don’t want to make distinctions between the people working to achieve the objectives.

However, there is one area where individual OKRs can make sense: in the commercial area. Well, if OKRs are linked to the number of sales under criteria that do not harm other areas, it could be perfect. In this area it might make sense to link incentives to OKRs.

CFR: the alternative to performance appraisal

Let’s see! OKR, CFR… more acronyms?

Yes, but they are the last ones, in relation to this area. For the time being, we already know that Americans love acronyms.

As we said in the introduction: it is NOT a good idea to link the Bonus to the OKRs. But if you want to help your team grow and improve, you need some alternative to performance appraisal: you need CFR.

What is CFR?

CFR stands for Conversation, Feedback and Recognition:

Conversations: A sincere and detailed dialogue between leader and team member designed to improve performance.

Feedback: Two-way communication between peers to evaluate progress and encourage future improvements. We will tell you more about this in another post, because what is feedabck and how to give it, novels can be written.

Recognition: Showing appreciation to those who deserve it for their contributions, no matter how large or small.

To explain it another way, let’s think of OKRs as the system that helps us define our goals, like when someone decides to learn to play the guitar and chooses a practice plan to achieve it. In this case, CFRs would be the complement that many people seek when taking lessons with a teacher or joining a band, which significantly increases the chances that the person will continue with the practice and eventually learn to play the guitar.

“CFRs are as much a priority as OKRs in driving transparency, accountability, empowerment and teamwork at all levels of the organization. As communication stimuli, CFRs kick-start OKRs and then launch them into the stratosphere.” John Doerr

In this way we can see CFRs as a great ally of OKRs, so not using them would be a great waste, a missed opportunity that we should not commit if we want to get the most out of this methodology.

How is CFR used?

The CFR is carried out in different ways:

• They can be with the whole team or individually (1 to 1).
• In weekly, monthly and quarterly OKR follow-up meetings

In addition, it will help us to keep the pace of the OKRs up.

CFRs are little known within the OKR system, but they can be one of the best tools to help organizations transform and move forward.

In my experience, they can bring a lot of value to the people on the team. Its use transcends whether we have an impact on the organization, but also allows the team to grow and establish trusting relationships.

Over time you realize 2 key factors to CFR’s (and OKR’s) success is that:

• CFR events should be planned, although it is always interesting to do it “ad hoc” to avoid delaying feedback or recognition.
• I have found it very helpful to use a tool to capture the conversations, topics discussed, actions or agreements of the sessions.

If you want to deepen your knowledge of OKRs, I suggest you sign up for one of our training courses, or if you prefer, we can accompany you in the implementation of OKRs.