The Incentive Dilemma: Aligning Performance Management with OKRs

At a Glance

The disconnect between OKRs and traditional performance management, including:

• Reward misalignment: Organizations measure success through outcomes but reward output delivery

• Career path tension: Long-tenured employees built careers on systems that may no longer apply

• Individual vs. team recognition: Traditional incentives reward individual heroism while OKRs focus on team achievement

• No one-size-fits-all solution: Different organizations need tailored approaches to this complex challenge

Hey folks,

In my conversations with teams implementing OKRs, one challenge consistently emerges that I don't have consistent answers for: How do we align our incentive structures with outcome-based OKRs when our organizations have historically rewarded output delivery and task completion?

This is a nasty, messy ball of twine, and in this newsletter, I want to open up the conversation to all of you. Because frankly, this is an area where I'm still learning too.

Let's untangle it. 

– Jeff

P.S.  We're actively seeking Certified Training Partners (more details below), and our book Who Does What By How Much is available at its lowest price ever on Amazon through the end of the month. 

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Article: The Incentive Dilemma: Aligning Performance Management with OKRs

The core tension

One of the biggest anti-patterns that hurts OKR implementations is the misalignment between what we're measuring and what we're rewarding.

In our book Who Does What by How Much?, Josh and I explain that effective OKRs measure human behavior change as success. However, most organizations measure success through:

• Delivery of features or products

• Completion of tasks or projects

• Implementation of solutions

And the entire reward system is built around these outputs:

• Job descriptions

• Performance management criteria

• Incentive structures

• Promotion pathways

• Team celebrations

When you switch to OKRs, all of this should theoretically change. But most organizations avoid tackling this mess because, well, it's messy.

The human element

I witnessed this firsthand while coaching at a large US bank. Picture someone who's been there for 20 years, followed all the rules, chased the incentives as designed, and is finally about to get that long-awaited promotion or corner office.

Then we come in and effectively say: "Great news! We're moving the goalposts. Not just further away — in a completely different direction."

It's no wonder people push back. They aren’t just trying to preserve abstract systems — they're the frameworks people have built their careers and livelihoods around.

Questions I'm wrestling with

Here's where I want to hear from you. If you've tackled this challenge or are currently facing it, I'd love your insights on questions like:

1. If we're making outcomes (not outputs) our key results, what should we actually reward?

2. How should job descriptions change to reflect outcome-oriented OKRs?

3. Traditional performance management rewards individual heroism, but OKRs are a goal-setting framework for teams. How do we balance individual career progression with team-based success measurement?

4. Have you successfully transformed your incentive structures to align with OKRs? What worked and what didn't?

5. For leaders: how have you managed the transition for long-tenured employees whose career paths were built on the old system?

I've deliberately avoided being prescriptive here because this isn't an area where one-size-fits-all solutions work well. Different organizational cultures, industries, and team structures require different approaches, and I’d love to hear yours. 

My current thinking

While I don't have all the answers, here are some principles I'm leaning toward:

• Reward learning and adaptation: Teams that test hypotheses, learn from failures, and adapt quickly should be recognized, even if the initial direction didn't pan out.

• Value collaboration over individual contribution: Find ways to measure how individuals enhance team outcomes rather than focusing solely on personal achievements.

• Create transitional models: Organizations may need hybrid approaches that bridge the gap between old and new incentive structures.

• Emphasize customer impact stories: Make customer outcomes visible and celebrated as much as (or more than) shipping features.

• Decouple incentives from key results: when “hitting the goal” means getting rewarded, teams are tempted to set lower goals or game the system.

What's your experience?

This is one area where the collective wisdom of practitioners likely exceeds what any individual expert can provide. I'd love to hear your stories, approaches, and even failed experiments.

Reply to this email with your thoughts, and with your permission, I may feature some of the most insightful responses in a future newsletter.

Let's untangle this messy ball of twine together.

What I’ve been up to

I've been pouring energy into expanding Sense & Respond Learning lately. Josh and I are actively recruiting Certified Training Partners interested in bringing our materials to their local markets and clients. If you're curious about becoming a partner or want more details, drop me a line by responding to this email or fill out this form.

You can still get our book Who Does What By How Much at its lowest price ever on Kindle and in paperback form through the end of the month. 

What’s new on the blog

Why “Your Best” Isn’t Enough—And What to Do Instead -The dangerous myth of "doing your best" assumes an endpoint that doesn't exist in business. Instead of chasing subjective perfection, successful teams focus on continuous improvement through iteration, feedback, and relentless customer-centricity. Forget "best"—embrace "better."

How to Run an OKR Retrospective: A Step-by-Step Guide - Quarterly OKR reviews are critical touchpoints in your outcome-driven process. This detailed guide provides a practical agenda template, identifies common pitfalls (unprepared teams, untrained leaders, roadmap conflicts), and shares key best practices to ensure your retrospectives drive meaningful progress—not just status updates on completed tasks.